Boston Fed president Susan Collins said Tuesday that the central bank will likely need to cut interest rates further and that the next phase of monetary policy should focus on preserving the economy.
Pointing to the consensus among her colleagues for two more 25 basis point rate cuts this year, Collins said in a speech in Boston that "further adjustments of policy will likely be needed."
She stressed that rate cuts are not on a pre-set path and that the Fed will remain data-dependent.
But she also invoked a warning from Fed Chair Jay Powell in August that the Fed does "not seek or welcome further cooling in labor market conditions" — a clear signal that policymakers were now more focused on maximizing employment than controlling inflation.
Collins joins the chorus of other Fed officials who have indicated they favor further rate cuts following the Fed's first cut in more than four years, a jumbo-sized 50 basis point cut initiated on Sept. 18 that was designed to get ahead of any weakness in the labor market.
On Tuesday, Federal Reserve governor Adriana Kugler said that she favors more cuts if inflation continues to drop. St. Louis Fed president Alberto Musalem said Monday night he too thinks it will likely be appropriate to lower rates over time toward neutral.
Chicago Fed president Austan Goolsbee told Yahoo Finance in an interview last Friday he doesn’t think a hot September jobs report will change the downward path of interest rates over the next 12 to 18 months.
Collins on Wednesday said recent data, including September’s unexpectedly strong jobs report, strengthens her assessment that the job market remains in a good place overall — neither too hot nor too cold.
The labor market added 254,000 payrolls in September, more than the 150,000 expected by economists, according to the latest released employment data. The unemployment rate also fell to 4.1% from 4.2% in August.
Collins pointed to how the unemployment rate rose from very low levels over the past year but has recently ticked back down and remains low by historical standards. While job growth slowed notably in recent months, it remains relatively solid, she added.
Collins warned that with the job market cooling and economic growth reverting to a more normal pace, the economy is "somewhat more vulnerable to adverse shocks."
She said her confidence that inflation is coming down has increased, but so have the risks that the economy could slow beyond what is needed to bring down inflation.
Fed officials have penciled in two more 25 basis point rate cuts at the remaining two policy meetings this year, in November and December.
New York Fed president John Williams told the Financial Times Tuesday that he strongly supported cutting rates by 50 basis points last meeting and that two additional 25 basis point cuts this year is a “pretty reasonable representation of a base case.”
He noted that he expects it will be appropriate to bring interest rates down over time.
“I don’t want to see the economy weaken,” said Williams. “I want to maintain the strength that we see in the economy and in the labor market. I think the recalibration of policy sets us up really nicely to achieve both of those goals.”