Boston Fed President Collins sees caution on future interest rate cuts

Boston Federal Reserve President Susan Collins on Tuesday expressed support for the recent interest rate cut, but showed some skepticism on the extent of future moves as she sees continued threats from inflation.

Speaking in New York, the central bank policymaker noted risks to both higher inflation and a softening labor market that are keeping officials on their toes.

“In my view, a bit of easing was appropriate to address the recent shift in the balance of risks to our inflation and employment mandate,” Collins said in prepared remarks. “But I continue to see a modestly restrictive policy stance as appropriate, as monetary policymakers work to restore price stability while limiting the risks of further labor market weakening.”

The “modestly restrictive” phrasing has been used by officials to describe the current stance of policy as holding back growth — and inflation — while taking heed of easing payroll gains and a gradual increase in the unemployment rate.

A voter this year on the rate-setting Federal Open Market Committee, Collins noted a “highly uncertain environment” that would see “higher and more persistent inflation, more adverse labor market developments – or both.”

“Still, with less scope for inflationary pressures from the labor market, the upside inflation risks I was concerned about a few months ago are more limited,” she added. “In this context, it may be appropriate to ease the policy rate a bit further this year – but the data will have to show that.”

At the September meeting, Collins and her fellow officials narrowly indicated the probability of two more rate reductions this year, and that has been reflected in market pricing.

Policymakers face challenges ahead with the looming government shutdown. The Labor Department has indicated it will cease data collection and releases on jobs while the impasse continues, as the pivotal nonfarm payrolls report looms Friday.

Earlier in the day, Fed Governor Philip Jefferson also noted that he supported the FOMC’s decision earlier in September to lower its benchmark borrowing rate by a quarter percentage point. Jefferson, a permanent FOMC voter, did not provide guidance on where he expects policy to go.

“Considering the outlook I described, I see the risks to employment as tilted to the downside and risks to inflation to the upside. It follows that both sides of our mandate are under pressure,” he said.

Market pricing indicates a near-certainty that the FOMC will approve another cut at its October meeting.