Boston Fed President indicates no rate cut in December
A Federal Reserve official indicated that the central bank may eventually have to moderate the speed of its rate reductions, noting that it is premature to determine if such a decision will be made at the upcoming meeting next month. In an interview on Thursday, Boston Fed President Susan Collins remarked that while another rate cut in December is “certainly on the table,” it remains “not a done deal.” “Additional data will emerge between now and December, necessitating a careful evaluation of what is prudent.”
The Federal Reserve is scheduled to convene on December 17-18. Prior to the upcoming meeting, officials will review the November data concerning inflation and employment. This week’s release of October inflation data exceeded expectations, according to comments made by Fed Chair Jerome Powell on Thursday. Collins remarked that she observed no indications of inflation rising as a result of emerging strengths in the economy, echoing a perspective articulated by Powell the previous week. Both individuals posited that the current persistence of inflation is more accurately characterized as a reverberation or “catch-up” effect stemming from significant price hikes observed in recent years, exemplified by the rise in car insurance costs that have adjusted to earlier surges in car prices, which have now moderated.
“Based on my observations, I find no indication of emerging price pressures,” stated Collins. Recent months’ firmer inflation, she noted, is indicative of “the effects of the longer-term dynamics of past shocks.” The Federal Reserve has implemented interest rate cuts in its last two meetings, initiating a half-percentage-point reduction in September as indications emerged of a potential softening in the labor market. At their recent meeting, officials reduced the benchmark rate by 25 basis points, bringing it to a range of 4.5% to 4.75%.
Collins, poised to join the Fed’s rate-setting committee as a voting member next year, expressed her endorsement for both of those cuts. “We will arrive at a juncture where a more measured and prudent approach will be warranted,” stated Collins. Collins expressed her belief that it would be fitting to further reduce interest rates to a so-called “neutral” level that neither stimulates nor constrains economic activity, following over a year during which the Fed maintained rates at a restrictive level. Collins expressed her belief that the current policy remains constrictive.
“I find it difficult to justify the continuation of restrictive policies in the absence of new price pressures, especially as the previous dynamics appear to be resolving gradually and unevenly over time,” she stated.
