Fed’s Collins says gradual rate hikes best to manage economic risks

BOSTON: Federal Reserve Bank of Boston President Susan Collins said on Saturday she supported a steady pace of modest interest rate increases because that path of action better managed 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.

“I do see the risks as two-sided on the real side of the economy,” Collins said, with inflation high and its gains broadening throughout the economy, while the job market was stable with the potential to accelerate.

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At the same time, there are the ongoing risks of more shocks hitting the economy, Collins said. Furthermore, “it’s possible that the rise in medium to longer term rates that we’ve seen since the beginning of the year may actually weigh on demand more than I’m thinking,” and serve as another source of restraint on economic activity, she said.

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 2 percent 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 percent to 4 percent 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 signaled support for steady and small increases to help lower inflation, but last week’s price data and the comments of Fed Governor Christopher Waller have suggested some on the Fed may want a bigger increase next month.

A number of Fed officials have said a more measured pace of rate increases allows the economy time to adjust to the rise in borrowing costs.

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 labor 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.