Boston Federal Reserve President Susan Collins said Thursday that U.S. central bankers will likely need to raise interest rates at least one more time this year to tamp down persistent inflation.
“Inflation remains too high, and recent indicators reinforce my view that there is more work to do to bring inflation down to the 2% target associated with price stability,” Collins said in remarks prepared for delivery to the National Association for Business Economics.
Her comments come just a few days after Fed officials delivered another quarter-percentage-point rate hike, lifting the benchmark funds rate to a range of 4.75% to 5%, the highest since 2007. It marked the ninth consecutive rate increase aimed at combating high inflation.
The Fed also released updated economic projections after the meeting that indicated most officials expect one more 25-basis-point increase this year.
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Collins – who is not a voting member of the policy-setting Federal Open Market Committee this year – said she supports the move and sees the rate-hike forecast as “reasonably balancing the risk of monetary policy not being restrictive enough to bring inflation down and the risk that activity slows by more than needed to address elevated price pressures.”
If it were not for recent turmoil within the banking sector, the Fed may have taken a less conservative approach on monetary policy, Collins said.
“While the banking system remains strong and resilient, recent developments will likely lead banks to take a somewhat more conservative outlook and tighten lending standards, thus contributing to slowing the economy and reducing inflationary pressures,” she said. “These developments may partially offset the need for additional rate increases.”
Market pricing indicates that central bankers will approve another quarter-percentage-point rate hike at their meeting May 2-3, according to the CME Group’s FedWatch Group. But traders expect the Fed to pivot and start reducing the federal funds rate as soon as July, eventually trimming as much as a full percentage point by the end of the year.
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Fed officials have been adamant that they are not considering slashing rates this year, even though the rapid rise in interest rates played a direct role in the spate of bank collapses earlier in March.
Collins said it is “premature” to say what rate moves she will support in May but said she does not foresee any rate cuts this year.
That echoes statements from other Fed presidents, who have argued that inflation remains uncomfortably high.
Minneapolis Fed President Neel Kashkari said in separate remarks on Thursday that policymakers have “more work to do” in their inflation fight, although he did not provide specific details.
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The Labor Department reported earlier this month that the consumer price index climbed 0.4% in February from the previous month and 6% on an annual basis – about three times the pre-pandemic average.
Core prices, meanwhile, rose faster than expected, climbing 0.5% in February.
