Perspectives on the Economy and Policy

By Susan M. Collins

November 20, 2024

University of Michigan’s Gerald R. Ford School of Public Policy

Boston Fed President & CEO Susan M. Collins Returns to the Ford School: A View from the Fed

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Takeaways from Boston Fed President Susan M. Collins’ Remarks

Collins sees the economy “in a good place overall, with inflation heading back to the 2 percent target amid a healthy labor market.” The primary job for monetary policy in this context is sustaining these favorable conditions going forward.
“I expect additional adjustments will likely be appropriate over time, to move the policy rate gradually from its current restrictive stance back into a more neutral range. However, policy is not on a pre-set path.”
Overall, Collins sees the inflation picture as encouraging – especially with inflation expectations well-anchored – and she cautions against overreacting to any one data release.
“The volatility in inflation highlights the need to assess the data holistically, to separate the signal from the noise, and not overreact to any one monthly reading.” Anchored inflation expectations make returning to 2 percent inflation “feasible without the economy staying below capacity for a time, as would be the case if expectations had risen and needed to be re-anchored.” The stability of long-run expectations speaks to the credibility of the Fed in fighting inflation.
Separating core inflation into three components illustrates that “most of the remaining elevation comes from shelter.” While shelter inflation has come down some, progress has been slow and uneven.
The key question is whether elevated housing inflation reflects the effects of ongoing price pressures from new leases, or simply the catch-up of existing leases to current market rents. The good news is that the data show little evidence of price pressures from current market rents.
A normalizing labor market and solid labor productivity growth have been important contributors to the disinflation process.
Other advanced economies have not experienced similar favorable productivity gains. Given the labor productivity and price developments to date, Collins sees little scope for wages to disrupt the ongoing disinflation progress, even if wages continue to grow at a somewhat faster pace than before the pandemic.
Collins believes “some additional easing of policy is needed, as policy currently remains at least somewhat restrictive.”
The intent is not to ease too quickly or too much, hindering the disinflation progress to date. At the same time, easing too slowly or too little could unnecessarily weaken the labor market. She added that at this stage, any further slowing in hiring would be undesirable. Policy is well-positioned to deal with two-sided risks and achieve the Fed’s dual mandate goals in a reasonable amount of time.
Collins emphasized how the Fed’s design, structure, and breadth of portfolio make the central bank “representative of the country, appropriately accountable, and also independent enough to make hard choices in the longer-term public interest.”
She described the Fed’s work in research, supervision, financial stability, payments transactions and infrastructure, liquidity, and support for economic development as reflecting data-driven analysis. She also discussed how the Fed acts as a convener and catalyst for collaboration across sectors.