Collins Calls for a Slowdown in US Economy to Tame Inflation, Emphasizing Demand-Supply Alignment

Federal Reserve Bank of Boston President Susan Collins believes that the U.S. economy needs to slow down in order to bring inflation back to the central bank’s target of 2%. In her remarks at a Massachusetts Institute of Technology event, she emphasized the importance of aligning demand with supply to achieve lasting inflation outcomes.

Collins mentioned that current monetary policy should remain unchanged until there is more confidence in inflation moving towards the 2% mark, given recent surprises in economic activity and inflation levels. The Federal Open Market Committee’s decision to maintain the overnight target rate range stemmed from ongoing inflation pressures that surpassed earlier predictions.

Despite uncertainties around the timing of interest rate cuts, many Fed officials have hinted at the possibility of easing policies depending on data trends. Collins highlighted the importance of assessing evolving risks and outlooks to adjust policies accordingly, stating that there is no fixed trajectory for policy decisions.

Collins remained optimistic about achieving the 2% inflation goal within a reasonable timeframe, considering a healthy labor market and consistent long-term inflation expectations. She noted that the recent productivity increase may not signal a lasting trend and that employers are likely equipped to handle higher wage demands.

Overall, Collins emphasized the need for a methodical and comprehensive approach to policy decisions based on a wide range of information. She expressed confidence in the Fed’s ability to navigate through economic challenges and achieve its inflation targets with careful consideration and assessment.