The Federal Reserve building, in Washington, on Jan. 26.JOSHUA ROBERTS/Reuters
Federal Reserve Bank of Boston leader Susan Collins said on Friday that with little evidence price pressures are waning, the Fed may need to deliver another 75-basis point rate hike as it seeks to get inflation under control.
“We’re now in a phase where deliberate increments – all of the possible increments – should be on the table as we decide what is sufficiently tight,” Ms. Collins told CNBC. “Seventy-five still is on the table; I think it’s important to say that as well.”
The Fed has lifted its policy rate more rapidly this year than any time since the 1980s, including four straight 75-basis-point increases that by early this month had brought short-term borrowing costs to a 3.75 per cent-4 per cent range, from near zero in March.
Fed Chair Jerome Powell and other policy makers have signalled that the central bank could shift to smaller rate hikes next month to avoid tightening more than necessary and sending the economy into recession.
At the same time, he said, rates ultimately may need to go higher than the 4.6 per cent that policy makers thought in September would be needed by next year.
Ms. Collins said Friday that the Fed’s September projections for rates was a “reasonable range.”
“I would say that some of the data that we’ve seen since then has increased at the top of where I think we might need to go,” she said. Fed policy makers will issue new forecasts in December, and “there will be new data between now and then so that’ll influence my own thinking.”
Recent data on inflation and on labour markets suggests some pressures may be moderating, and some policy makers have signalled they feel that could allow the Fed to slow the tightening process.
“We’re starting to see some promising signs, although certainly we’re not seeing clear consistent evidence of the kind of softening in labour markets, the kind of dynamic that we would like to see and service sector prices are still very high,” Ms. Collins said. “I do not see clear, significant evidence that the overall inflation rate is coming down at this point.”
Ms. Collins, who votes on the Fed’s interest rate decision in December, said it is still possible that the Fed can bring inflation down without causing too much trouble for the economy.
“I look at current conditions and remain optimistic that there is a pathway to re-establishing price stability with a labour market slowdown that entails only a modest rise in the unemployment rate,” Ms. Collins said.