Reflections on Uncertainty and Patience in Monetary Policymaking Reflections on Uncertainty and Patience in Monetary Policymaking


Remarks at the Sloan School of Management at the Massachusetts Institute of Technology

Boston Fed President and CEO Susan M. Collins' remarks, and a fireside chat with Kristin Forbes, Jerome and Dorothy Lemelson Professor of Management and Global Economics at Sloan, were livestreamed.

Takeaways from Boston Fed President Susan M. Collins’ Remarks Takeaways from Boston Fed President Susan M. Collins’ Remarks

  1. Collins remains optimistic that inflation can be brought back to 2 percent in a reasonable amount of time and with a labor market that remains healthy. But she is realistic about the risks and uncertainties around that outlook. Uncertainty remains high in terms of the timing and full impact of monetary policy.
  2. Stronger-than-anticipated inflation and economic activity suggest that achieving the Fed’s dual mandate goals may take longer than previously thought, and progress may be uneven. Monetary policymaking in the current context requires patience and methodical assessment of the available constellation of information.
  3. There was noticeable progress last year towards price stability, driven largely by favorable supply developments (including labor productivity). But such rapid supply improvements may not continue, making demand moderation important. Collins expects that slower growth will be needed to achieve a better balance with supply and ensure the economy remains on a path towards price stability.
  4. The current policy stance, which Collins views as being moderately restrictive, is appropriate for balancing the current two-sided risks (of easing too soon or holding too long). Given the restrictive stance, Collins expects economic activity will eventually slow as needed for inflation to durably return to target. And she believes policy is well positioned to respond to incoming data, as the FOMC assesses the evolving outlook and risks.
  5. Collins believes that the economy’s rebalancing also depends on demand and supply in the labor market coming into better alignment. Focusing on the relationship between wages and prices, she notes that labor productivity trends have been favorable and should ultimately be reflected in higher compensation for workers. In this context, she believes there is scope for wages to catch up to past price and productivity increases over time without generating additional inflationary pressures.
  6. In assessing whether conditions are consistent with a potential easing of interest rates, Collins highlighted four areas of particular focus. She will be looking for short- and longer-term inflation expectations remaining well anchored. And for further sustained disinflation – especially in the components that remain most elevated. She’ll look for evidence that wages continue to evolve in a way that is consistent with price stability. And for ongoing indications that labor markets are moderating in an orderly way that better aligns labor supply and demand.

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