Boston Fed chief says more rate hikes needed to cool inflation

Despite glimmers of good news, Collins joins Fed colleagues in eyeing more higher rates to come.

Susan M. Collins, president of the Federal Reserve Bank of Boston.© Federel Reserve Bank of Boston

Susan M. Collins, president of the Federal Reserve Bank of Boston, on Friday said economic reports have made clear that more interest rate increases will be needed to get inflation under control — even though there have been encouraging signs that gains in consumer prices are moderating.

Taming inflation “will require additional increases in the federal funds rate, followed by a period of holding rates at a sufficiently restrictive level for some time,” Collins told attendees of a Boston Fed conference on labor markets. “The latest data have not reduced my sense of what sufficiently restrictive may mean, nor my resolve.”

Since raising its benchmark federal funds rate for the sixth time this year on Nov. 2, Fed officials have said they will take a “slower but higher” approach to figuring out how steep rates need to be to get inflation moving meaningfully back to their 2 percent target. Depending on which measure you use, prices are climbing at two to three times that pace.

US consumer prices rose less than expected in October, the Labor Department said Nov. 10, with the annual increase falling below 8 percent for the first time in eight months. It was the first good news on inflation for months.

But Collins, in an interview with reporters following the first day of the conference, said she had not seen a “wave of clear and convincing evidence [inflation is] coming down.”

Moreover, she said, other economic data have prompted her to increase her expectation for how high rates will have to go.

Fed officials boosted the federal funds rate by three-quarters of a percentage point at each of their past four meetings, bringing the upper range to 4 percent. When they gather on Dec. 13-14, they are expected to decide between another three-quarters point increase or a half-point.

Collins declined to say how high rates might ultimately have to go, or how long they would remain there. Her counterpart at the St. Louis Fed, James Bullard, said Thursday that rates should go to at least 5 percent to 5.25 percent. San Francisco Fed President Mary Daly said on Wednesday that “somewhere between 4.75 and 5.25 seems a reasonable place to think about.”

In remarks to the labor market conference, Collins also said she remains hopeful the central bank can bring down inflation without causing a significant recession.

“I look at current conditions and remain optimistic that there is a pathway to reestablishing price stability with a labor market slowdown that entails only a modest rise in the unemployment rate,” she said.