Fed's Collins backs gradual rate increases to manage economic risks

Federal Reserve Bank of Boston President Susan Collins said on Saturday she supports a steady pace of modest interest rate increases, arguing that a gradual path better manages economic uncertainties. She noted that recent price and labour market data could push the policy rate path higher than she

Federal Reserve Bank of Boston President Susan Collins said on Saturday (Nov 14) she supported a steady pace of modest interest rate increases because that path of action better manages economic uncertainties.

When it comes to moving monetary policy to a tighter footing, "a steady, gradual path seems appropriate to me at the moment. But I'm open-minded," Collins told reporters at a conference held by her bank on housing issues in Boston.

Collins said she saw risks on both sides of the economy, with inflation high and its gains broadening, while the job market was stable with the potential to accelerate. At the same time, there are ongoing risks of more shocks hitting the economy, and it is possible that the rise in medium to longer term rates seen since the beginning of the year may weigh on demand more than she had been thinking, serving as another source of restraint on economic activity.

For now, all of that argues against the Fed shifting to a more aggressive pace of rate rises to contain inflation that has overshot the Fed's two per cent target for more than five years, Collins said.

The Fed last raised rates in September, and it is widely expected to lift its current 3.75 per cent to 4 per cent interest rate target range by a quarter percentage point at the December 8-9 monetary policy meeting, following that with another increase in January. Most Fed officials have signalled support for steady and small increases to help lower inflation, but last week's price data and comments from Fed Governor Christopher Waller have suggested some on the Fed may want a bigger increase next month.

Collins cautioned that her expectation that the Fed can move gradually "doesn't necessarily mean a particular cadence." She also reiterated that the data flow from recent months has shifted where the Fed could end up in its current tightening cycle. "I do think that the price data we've seen over the past three months, and the labour market on a stronger footing, does make me think that the path of policy rates over the, you know, next year might be a bit higher than I had thought a couple of months ago," Collins said.