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Fed’s Collins Says Half-Point Rate Cut Was ‘Prudent’ Given Risks

Boston Fed President Susan Collins (Victor J. Blue/Photographer: Victor J. Blue/Blo)

(Bloomberg) -- Federal Reserve Bank of Boston President Susan Collins said it was “prudent” for officials to lower rates by a half percentage point last month as inflation declines and the economy becomes more vulnerable to shocks.

“I saw an initial 50-basis-point rate reduction as prudent in this context, recognizing that monetary policy remains in restrictive territory,” Collins said Wednesday in remarks prepared for an event in Worcester, Massachusetts. “Further adjustments will likely be needed.”

The Boston Fed chief largely repeated comments she made on Tuesday, including her view that policymakers should take a “careful, data-based approach” as they lower rates to help preserve the strength in the US economy. She emphasized again that policy is not on a pre-set path. 

The Fed lowered rates last month for the first time since the onset of the pandemic, cutting borrowing costs by a larger-than-expected half point. Fed Chair Jerome Powell said the move was meant to protect the US labor market as inflation moves closer to the central bank’s 2% target.

A blockbuster September jobs report released last week eased worries about the cooling labor market and gave policymakers more leeway to lower rates at a slower pace. Investors now see the Fed lowering interest rates by a quarter point in November, followed by a similar move in December.

Minutes from the Sept. 17-18 gathering released on Wednesday reported that a “substantial majority” of policymakers supported the outsize cut, but also suggested there was robust debate over the decision. “Some” participants preferred a quarter-point cut and a “few others” indicated they could have supported such an move.

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