Perspectives on the Economy and Monetary Policy

By Susan M. Collins

November 4, 2022

Virtual

Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution

Full-Text Speech (pdf)

Five Takeaways from Boston Fed President Susan M. Collins’ November 4, 2022 Remarks

With inflation much too high, and job-availability robust, the priority is to bring inflation back to the 2 percent target, consistent with the Fed's dual mandate from Congress. It is clear there is more work to do, to get there. I expect this will require additional increases in the federal funds rate, followed by a period of holding rates at a sufficiently restrictive level for some time.
Both unemployment and inflation are very costly for individuals and our economy. The costs for both are also disproportionately borne by those who are most vulnerable in our society, like those with lower incomes. Returning to low, stable inflation will set the foundation for maximum employment that is sustainable; and for a vibrant, resilient, inclusive economy that works for all.
Lowering inflation requires slowing economic activity, and bringing demand and supply in the labor markets into better balance to relieve inflationary pressures. While there are risks and uncertainties, I remain optimistic about the possibility of achieving this without a significant economic slowdown.
The aggressive pace of interest rate increases to date has been appropriate, given rates had been near zero before March. Now that rates are in restrictive territory, the next phase of tightening should shift from a focus on pace to a focus on levels – determining the level needed to be sufficiently restrictive. I expect it will be appropriate to continue raising rates, with the size of future increases determined by a holistic assessment of incoming information.
As policy becomes more restrictive, the risks of overtightening rise. Increasingly, these risks must be thoughtfully weighed against the risks of moving too slowly and allowing higher inflation expectations to become entrenched.