Perspectives on the Economy and Policymaking
September 6, 2023
New England Council
Takeaways from Boston Fed President Susan M. Collins’ September 6, 2023 Remarks
- Holistic Assessment: Collins reviews a wide range of information to assess the evolving economy. She looks for patterns and trends showing sustained reductions in inflation, and progress on the underlying goal of bringing demand and supply back into better balance. She notes that price stability is essential for a well-functioning economy and an important precondition for maximum employment that is sustainable over time.
- Current Indications: Strong demand relative to supply has been a key factor driving higher inflation. While we are seeing some signs of moderation, demand continues to outpace supply, creating price pressures. Core inflation shows modest and relatively recent moderation. There are promising developments, but given continued strength in demand, Collins' view is that it is just too early to take the recent improvements as evidence that inflation is on a sustained path back to the 2% target.
- Patience and Data Dependence: This phase of monetary policy calls for patience and holistic data dependence. One reason is the difficulty of extracting signal from noise in the data. Another is increased uncertainty about the timing and ultimate impact on the economy of policy tightening to date – including some reasons to expect longer lags than normal due to some unique aspects of the pandemic recovery.
- Staying Resolute: Importantly, patience does not mean indecision, or a change in commitment to the 2 percent target and to achieving price stability in a reasonable amount of time. Collins expects we'll need to hold rates at restrictive levels for some time. And while we may be near, or even at, the peak, further tightening could be warranted, depending on incoming data. We are well positioned to proceed patiently, carefully, yet deliberately; recognizing the risks while remaining resolute.
- Optimistic While Realistic: Continued restrictive monetary policy should temper demand further, to bring it into better balance with supply – however, Collins does not believe a significant slowdown is required. She remains realistic about the risks and uncertainties around the outlook, while optimistic that price stability is achievable with an orderly slowdown and only a modest unemployment rate increase – ideally preserving some of the current favorable labor market dynamics.
- Engagement and Collaboration: The Fed's mandate and concern for a vibrant, inclusive economy lead us to study economic issues that prevent people from participating in the economy or workforce, as well as the gaps in wealth accumulation and prosperity. Collins will continue to prioritize hearing from those in a wide range of roles, who make up and shape our region's economy. The Boston Fed will continue working to support a vibrant, inclusive economy full of opportunity, working collaboratively with organizations across the region to understand and address challenges.