Federal Reserve’s Susan Collins Suggests Additional Rate Hikes Remain on the Table

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Despite recent positive indicators regarding inflation, Boston Federal Reserve President Susan Collins expressed on Friday that additional interest rate hikes might still be necessary.

While acknowledging the inclination to celebrate good news, Collins emphasized the importance of not ruling out further tightening measures. During an interview on CNBC’s “Squawk on the Street” with Steve Liesman, the central bank official stated, “I understand the tendency to really enjoy good news, and there was some good news in some of the numbers — and I think that we need to appreciate that. But I don’t see additional firming off the table. I think the key point is we need to really stay the course.”

This sentiment aligns with other Federal Reserve officials who have emphasized that while inflation is making progress toward the Fed’s 2% 12-month target, there is still room for improvement. Policymakers are cautious about repeating past mistakes, where the Fed prematurely halted efforts to curb inflation, leading to unintended consequences.

Recent inflation reports indicated a deceleration in both consumer and producer prices. However, Collins cautioned against overreacting to short-term fluctuations, describing the recent data as “noisy.” She stressed the need to assess information holistically and make real-time judgments based on the entire range of available data.

Despite market expectations suggesting a low likelihood of further rate hikes in this cycle, with the central bank’s benchmark borrowing rate targeted in a range between 5.25% and 5.5%, the highest in 22 years, Collins emphasized the need for patience. Market pricing projections from the CME Group’s FedWatch gauge indicate anticipation of the Fed starting to cut rates in May, with a projected reduction of a full percentage point in the Fed funds rate by the end of 2024.

Collins acknowledged the positive developments in stabilizing the labor market and tightening financial conditions. However, she emphasized the importance of patience, stating, “It’s important for us to be patient and recognize that [we’re] far from declaring victory.”

It’s worth noting that Collins will not be a voting member on the rate-setting Federal Open Market Committee until 2025, indicating that her perspectives are more reflective than immediate in terms of policy decisions.