Economy

Fed’s Collins repeats it is ‘likely’ rate cuts will begin this year

FILE PHOTO: Federal Reserve Bank of Boston President Susan Collins stands behind the Jackson Lake Lodge in Jackson Hole, where the Kansas City Fed holds its annual economic symposium, in Wyoming, U.S., August 24, 2023. REUTERS/Ann Saphir/File Photo

(Reuters) – The Federal Reserve will likely need to start cutting its benchmark overnight lending rate later this year, Boston Fed Bank President Susan Collins said on Wednesday.

“I believe it will likely become appropriate to begin easing policy later this year,” Collins said in prepared remarks to an event at Dartmouth College, in Hanover, New Hampshire, echoing similar sentiments she made earlier this month. “When this happens, a methodical, forward-looking approach to reducing rates gradually should provide the necessary flexibility to manage risks, while promoting stable prices and maximum employment.”

The U.S. central bank has kept interest rates unchanged since last July in the 5.25%-5.50% range after a steep hiking cycle in order to quash inflation that had risen to its highest level in 40 years.

Fed policymakers have forecast three rate cuts this year, but have made plain that they are waiting for more confidence in falling inflation before easing can begin.

Collins said that recent hotter-than-expected employment and price increase readings meant that the Fed’s path to returning inflation to its 2% target rate “will likely continue to be bumpy.”

“It will be important to see sustained, broadening signs of progress toward the Fed’s dual mandate goals – while recognizing that progress may be uneven,” Collins said, although she added, “expecting all data to speak uniformly is too high a bar.”

Collins said she was looking for continued declines in housing inflation and non-shelter services inflation, as well as more evidence the pace of wage gains is not adding to inflationary pressures.

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