Fed Chair Susan Collins Says Economy May Have to Weaken to Meet 2% Inflation Target

Fed Chair Susan Collins Says Economy May Have to Weaken to Meet 2% Inflation Target
Fed Chair Susan Collins Says Economy May Have to Weaken to Meet 2% Inflation Target

Federal Reserve Bank of Boston President Susan Collins said Wednesday that the U.S. economy needs to slow in order to bring inflation back to the central bank’s 2% target.

A slowdown in activity will be necessary to bring demand better in line with supply so that inflation returns sustainably to the official target, Ms. Collins said in a speech at an event hosted by the Massachusetts Institute of Technology.

For now, with respect to monetary policy, recent upward surprises in activity and inflation suggest the likely need to maintain policy at its current level until we are more confident that inflation is sustainably approaching 2%, she declared.

Ms. Collins’ remarks were the first she had made since last week’s Federal Open Market Committee meeting. At the meeting, officials kept their overnight rate target range between 5.25% and 5.5%, while continuing to address inflationary pressures that this year have proven more robust than they had not expected it.

Continued price pressures have generated considerable uncertainty over when the central bank might be able to cut interest rates. In recent weeks, many Fed officials have entertained the prospect of easing but refrained from providing any timetable for rate cuts, while monitoring data on progress in reducing interest rates. ‘inflation.

In her remarks, Ms. Collins said that, overall, policy remains well positioned to respond to incoming information, as we assess the evolving outlook and risks. She also said she was optimistic that the Fed could bring inflation back to 2% in a reasonable time frame, with the jobs market remaining healthy.

That said, it will take longer than expected to achieve 2% inflation. Ms Collins stressed that there is no set path for monetary policy and that decisions must be made based on a methodical and comprehensive assessment of a wide range of information.

Ms. Collins also said that long-term inflation expectations were in line with the feds’ 2% inflation target and that the recent jump in productivity was probably not a sign of a lasting trend. Ms Collins also said employers are likely able to absorb higher wage demands. (Reporting by Michael S. Derby; Editing by Andrea Ricci)

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