Fed President Susan Collins emphasized the necessity for inflation to spread across various sectors before considering an adjustment to policy. During a speech at the Tuck School of Business at Dartmouth College, Collins questioned the criteria she would need to observe in the data to decide on easing policy.
Signs of Progress Needed
Collins highlighted the importance of witnessing sustained, broad progress towards achieving low inflation and fostering healthy labor markets. Specifically, she expressed the desire to see continuous decreases in housing and non-shelter services inflation, acknowledging their stubborn nature.
Realistic Optimism for Economic Path
Despite acknowledging that the journey toward 2% inflation without harming the labor market will have its challenges, Collins remained optimistic. She mentioned that although progress may be uneven, signs of slowing demand in the economy were a positive step in alleviating price pressures.
Gradual Reductions in Rates Advised
Collins echoed her Fed colleagues’ sentiments on potentially initiating rate cuts later in the year. She advocated for a systematic and forward-looking approach to gradually reducing rates, emphasizing the importance of flexibility in managing risks while maintaining stable prices and maximum employment.
Market Expectations and Future Outlook
Market expectations, as reflected by traders in derivative markets using the CME’s FedWatch tool, point towards the likelihood of the first rate cut happening in June. Despite forecasting three rate cuts for the year, down from initial expectations of six cuts, Fed officials remain focused on navigating uncertainties surrounding economic growth and consumer behavior.