Source: Federal Reserve Bank of Boston Boston Federal Reserve Bank President Susan Collins expressed confidence that policymakers can tame inflation without causing much damage to employment. “By raising interest rates, we aim to slow the economy and bring labor demand into better balance with supply,” Collins said in prepared remarks for a Boston Fed conference on the labor market. “The intention is not a major recession. But restoring price stability remains the current imperative and clearly there is more work to be done.” He spoke as the Fed is in the midst of an aggressive campaign to reduce runaway inflation. A string of rate hikes has brought the central bank’s lending rate to a range of 3.75%-4%, and almost all other Fed officials said they expect more hikes. In her remarks, Collins noted the importance of reducing inflation and acknowledged that the Fed’s moves could set a price. Collins is a voting member of the rate-setting Federal Open Market Committee, which meets next on Dec. 13-14, when it is widely expected to rate the funds rate another half percentage point. “I remain optimistic that there is a path to rebalancing the labor market with only modest increases in the unemployment rate – while remaining realistic about the risks of a deeper recession,” she said, adding that she believes “there is a path to restoring price stability with a slowdown in the labor market that implies only a moderate increase in the unemployment rate.’ Her comments follow a flurry of similar remarks from colleagues. St. Louis Fed President James Bullard jolted markets Thursday when he said the funds rate may need to rise as much as 7 percent. Other officials also said they see more increases and expect rates to remain high. Markets received some hope in a report last week showing that the pace of inflation has slowed. But Collins said that “the latest data has not dampened my sense of what restrictive enough might mean, nor my resolve. “Quite restrictive” is a benchmark the Fed has set to determine where interest rates should move to reduce inflation. Current forecasts are around 5%, although that could change when FOMC members present their revised outlook for interest rates and the economy at next month’s meeting. “At the Fed, we are committed to returning inflation to the 2% target over a reasonable period of time. Only when inflation is low and stable can the economy in general — and the labor market in particular — work well for all Americans,” said Collins. he said.
