WASHINGTON (AP) — Susan Collins, the incoming president of the Federal Reserve Bank of Boston, said Monday that a higher unemployment rate will be needed to bring down inflation of unusually high levelsbut also indicated that an economic downturn would likely be moderate.
In her first speech as President of the Boston Fed, Collins said the economy is resilient enough to withstand the higher interest rates needed to fight inflation, which is near a four-decade high. Her comments echoed similar remarks by Atlanta Fed President Raphael Bostic on Sunday. Fed Chair Jerome Powell has also said to fight inflation would cause “pain”. for households and businesses.
“Reaching price stability requires slower job growth and a slightly higher unemployment rate,” Collins said in a speech to the Greater Boston Chamber of Commerce.
Acknowledging the job losses are painful, Collins said: “There is concern about the possibility of a significant downturn.” But she maintained that “the goal of a more modest slowdown, while challenging, is achievable.”
Her comments contributed to an ongoing debate about how much the Federal Reserve’s continued rate hikes — the fastest in more than 40 years — will hurt the economy. The Fed is pushing the US dollar higher by raising interest rates costs of a wide range of consumer and business loans, including for mortgages, car loans and credit cards.
Fed officials are hoping these hikes will achieve a “soft landing” by curbing consumer and corporate spending enough to lower inflation, but not so much as to cause a recession.
However, many economists are increasingly skeptical that such an outcome is likely. The Fed has raised interest rates to a range of 3% to 3.25%, the highest in 14 years, but job growth remains solid and consumers are still spending at a reasonable pace. This suggests the Fed may need to push rates higher than expected to slow consumer demand and inflation.
At a monetary policy meeting last week, the Fed raised its short-term interest rate by three-quarters of a point for the third straight month. Fed Chairman Jerome Powell, at a press conference after the meetingsaid that “the chances of a soft landing are likely to decrease” as the Fed steadily increases borrowing costs.
“No one knows if this process will lead to a recession or, if so, how significant that recession would be,” Powell said.
Collins is one of 12 voting members of the Fed’s policymaking body and the first black woman to serve as president of a regional Fed bank. She was sworn in on July 1st. Previously, Collins was executive vice president at the University of Michigan and a member of the board of directors of the Chicago Fed.
Atlanta Fed President Bostic said in an interview with CBS News’ Face the Nation on Sunday that “we need a slowdown” to get inflation under control.
“But I think at the Federal Reserve we’re going to do everything we can to avoid deep, deep pain,” he added.
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