Perspectives on the Economy
September 22, 2023
Annual Convention of the Maine Bankers Association
Takeaways from Boston Fed President Susan M. Collins’ September 22, 2023 Remarks
- Price stability is essential for a well-functioning economy, and an important precondition for maximum employment that is sustainable over time.
Collins continues to hear about the challenges households and firms face related to too-high inflation. The focus at the Fed remains bringing inflation down to the 2 percent target.
- While recent inflation readings have been encouraging, inflation remains too high. Some important components of inflation have yet to show sustained improvement.
Although still elevated, inflation is down from its earlier peak. However, most of the moderation in core inflation has come from a decline in goods inflation. Shelter inflation has also moderated recently, and will likely ease further. However, inflation in core services excluding shelter (over half of the Fed's preferred inflation measure) has yet to show improvement consistent with price stability.
- Collins fully supports the FOMC's attentiveness to inflation risks and commitment to price stability.
Sustained reductions in inflation will require demand coming into better balance with supply across the economy. While there is some evidence this realignment is underway, especially in the labor market, economic activity continues to be above trend and it is too soon to be confident that inflation is on a sustainable trajectory back to target. Collins agrees with the policy guidance in the median SEP projections which show rates staying higher, and for longer, than previous projections had suggested; and further tightening is certainly not off the table.
- This phase of policymaking requires considerable patience, to extract the signal from noisy data and to allow some temporary factors to play out. Collins is realistic about risks, but optimistic about restoring price stability with an orderly realignment of demand with supply.
The economic circumstances surrounding the pandemic and recovery have been, and continue to be, highly unusual. This phase of monetary policy requires patience. Collins is a "realistic optimist" – realistic about the uncertainties, but optimistic that price stability can be restored with only a modest increase in the unemployment rate. She believes the pathway to achieving this outcome has widened.
- Across Maine (and New England), local leadership efforts are addressing economic challenges and promoting resurgence.
There are many dimensions to economic prosperity – so the Fed has a broad portfolio of activities, including encouraging local initiatives to foster economic resurgence in areas facing long-term struggles. An essential element is cross-sector collaboration among local individuals. In Maine, there are six such "Working Places" efforts, and the Fed simply helps the local networks emerge and flourish. Collins notes that collaborating to improve opportunities for people and places to not be left behind – but rather join in the economy – is good economics, good citizenship, and good business.