Fed’s Collins Says Rate Cuts Should Be Careful, Data-Based

(Bloomberg) -- Federal Reserve Bank of Boston President Susan Collins said policymakers should use a careful, data-dependent approach as they lower interest rates to help preserve the strength of the US economy.

Recent data, including the blockbuster September jobs report released last week, show the US labor market is in a “good place overall,” Collins said. She added that she now has more confidence inflation will return to the central bank’s target in a “timely” way alongside a healthy labor market.

“Looking ahead, preserving the current favorable economic conditions will require adjusting the stance of monetary policy, so as not to place unnecessary restraint on demand,” Collins said Tuesday in remarks prepared for a community bankers conference hosted by the Boston Fed. “A careful, data-based approach to policy normalization will be appropriate as we balance two-sided risks and remain highly attentive to both parts of our Congressional mandate – price stability and maximum employment.”

The US central bank lowered borrowing costs by a half point last month, launching its easing cycle with a larger-than-anticipated move. Fed Chair Jerome Powell said the rate cut was intended to bolster the economy and reflects the growing confidence officials have that inflation is headed down to their 2% target.

Policymakers have more leeway to lower rates at a slower pace after fresh data showed that the US labor market added 254,000 jobs last month and the unemployment rate ticked down to 4.1%. The stronger-than-expected report took some pressure off the Fed by easing concerns about the labor market.

Collins said the effects of restrictive monetary policy are being felt in interest-rate sensitive sectors of the economy. The Boston Fed chief also said the US economy is more “vulnerable” to shocks now that the labor market is cooling and economic growth is moderating.

“My confidence in the disinflation trajectory has increased – but so have the risks of the economy slowing beyond what is needed to restore price stability,” she said.