MNI: Fed's Collins Says Further Tightening Could Be Warranted

Federal Reserve Bank of Boston President Susan Collins Wednesday left open the potential for more policy tightening to bring inflation sustainably back toward the 2% target and affirmed high-for-long interest rates are likely.

"While we are likely near, and could be at, the peak for policy rates, further tightening could be warranted depending on incoming information," Collins said. She didn't weigh in on the idea of whether the recent jump in bond yields is doing some of the Fed's work for it.

The risk of inflation remaining persistently high has become closely balanced with the risk of slowing activity more than needed to achieve price stability, she said. "In my view, this transition to a more patient, approach – taking the time to holistically assess incoming information – was warranted for a number of reasons," she said in prepared remarks.

FOR SOME TIME

The Boston Fed chief expects "we’ll need to hold rates at restrictive levels for some time – until we see evidence that inflation is on a sustained path back to 2 percent."

Collins is optimistic that price stability can be restored with an orderly slowdown in activity and only a modest increase in the unemployment rate. "With interest rates firmly in a range that will restrict the economy, we are starting to see promising signs of policy having the desired effects."

(See MNI POLICY: Softer Trend Inflation Boosts Case For Fed Pause)

Core PCE inflation has moderated some, but it is too soon to tell whether recent progress will be sustained, she said. Core inflation for non-housing services remains elevated and to bring it down will likely require labor market conditions to cool more, Collins said in a speech at Wellesley College.