MNI: Fed's Collins Anticipates Further Hiking And Long Hold

Boston Fed President Susan Collins said Friday she sees the need for more rate increases amid high inflation and then likely holding there for an extended period of time.

"Inflation remains too high. I anticipate further rate increases to reach a sufficiently restrictive level, then holding there for some, perhaps extended, time," she said according to prepared remarks. "I remain optimistic there is a path to restoring price stability without a significant downturn."

The process of realigning demand with supply is underway now that policy is in restrictive territory, she said. "These actions, along with the ones I expect will be taken going forward, should bring inflation back down to target in a reasonable amount of time," she added.

The Fed earlier this month raised its official interest rate target range by 25 basis points to a range of 4.50%-4.75%. The Fed is expected to hike by another 25 basis points in March but some officials have said a 50-basis-point move should not be ruled out. (See MNI INTERVIEW: Fed May Need To Raise Rates Above 6%)

2021 TRADE-OFF

Collins defended the Fed's low-rate policy through the pandemic and the economic rebound while speaking at a Booth conference panel focused on inflation mistakes over the course of 2021 and 2022.

"In the aftermath of the deep pandemic downturn, in the face of significant continued uncertainty, and with inflation expectations in a reasonable range – supporting the economy versus pre-empting an inflation surge that few were forecasting seemed a reasoned decision," she said.

"The nature of the pandemic represented unchartered waters for policymakers, and as I have argued, supply factors played an important role," Collins said. "Indeed, there may be a somewhat stronger case than previously thought for taking out insurance against adverse inflation outcomes, with policy tightening, when there is the risk of supply constraints being binding."