Boston Fed President: If inflation continues to slow, rate cuts will come "very soon"!

In an interview, Colin Collins, a voting member of the FOMC and President of the Boston Fed, stated that if inflation continues to decline while the labor market remains strong, the Fed may begin to relax interest rate constraints.

Collins added that despite the latest employment data falling below expectations, the U.S. labor market remains robust. She warned that although inflation is returning to the 2% target level, the pace is slower than expected.

Collins expects that policy rates will be lower in the coming years. She said, "We will release a new economic forecast summary in September, including the outlook for interest rates at the end of 2024, 2025, and 2026 based on the data seen so far by the 19 FOMC members."

However, she did not provide more specific details on the timing and pace of rate cuts. She stated, "I do expect some moderation in the coming years. But the magnitude, timing, and pace of rate adjustments will be determined by the data."

Collins also said, "We will have more data before our meeting in September, and I don't want to make judgments prematurely. The economy is growing at a pace that I believe can sustain a strong labor market."

Collins mentioned that she has been a "realistic optimist" for about the past year and a half, believing that there is a way to lower inflation without causing an excessive slowdown in economic growth. She noted, "The Fed has made significant progress in reducing inflation, all while maintaining a healthy labor market."

Collins believes that monetary policy should be forward-looking, focusing on both price stability and maximum employment.

When asked if the U.S. economy is heading into a recession, Collins referred to the July jobs report released last Friday, which was weaker than many had expected. But she cautioned against "overemphasizing any one or two later-released data points."

She added, "Data is crucial, but it also has a lot of noise. There are other indicators showing that the labor market conditions are relatively healthy and consistent with the return of inflation to target. For example, layoffs remain low."

Collins pointed out that while the unemployment rate has risen, its increase is influenced by many factors, including an increase in labor force participation and the continued growth in immigrant numbers.

She warned, " The risk of negative sentiment becoming self-fulfilling is a major issue. Therefore, I think it is important to discuss data that shows stable performance, not just indicators that may be worrisome."