Fed's Collins eyes about two rate cuts this year
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[April 12, 2024] By
Michael S. Derby
NEW YORK (Reuters) - Federal Reserve Bank of Boston President Susan
Collins is eyeing a couple of interest rate cuts this year amid
expectations it could still take some time to get inflation back to
targeted levels.
“I am still expecting that we're going to see some slowing in demand
start and continue into 2024, and that will help to bring inflation down
later in the year,” Collins said in an interview with Reuters on
Thursday.
Her remarks followed a speech in which she said the Fed is likely to cut
its policy rate at some point this year but that uncertainties and risks
around inflation mean that the Fed needs to take its time before doing
so. The strength of the job market and the broader economy allow time
for that patience, she said.
When it comes to the number of rate cuts the central bank is likely to
deliver, Collins told Reuters she was “in the range of two,” referencing
the quarterly forecast she submitted for the Fed's meeting in March.
The median estimate among policymaker projections released in both March
and December was for three cuts totaling 75 basis points in 2024, an
amount Collins had said in a SiriusXM Radio interview in February was
"similar" to her baseline expectation.
As for when the Fed starts cutting rates, “the data continue to be
volatile and noisy and a lot of uncertainties” abound, Collins said. “We
don't have a crystal ball in terms of how things will come out” and that
means it’s not possible to say when the Fed will cut its interest rate
target.
Collins was interviewed at a time when inflation data over the start of
the year has shown that after last year’s swift decline in price
pressures, covering the final distance toward the 2% target is proving
more challenging. At the Fed’s March policy meeting officials kept rates
target steady at between 5.25% and 5.5%, where they have been since
July.
Until this week, the prevailing view on Wall Street had been for cuts to
begin in June, but stronger-than-expected inflation data coupled with
very robust hiring reports have triggered a reset of expectations to
September. Economists at some big banks, meanwhile, have either reduced
or eliminated altogether forecasts of Fed rate cuts for 2024.
[to top of second column] |
Federal Reserve Bank of Boston President Susan Collins stands behind
the Jackson Lake Lodge in Jackson Hole, where the Kansas City Fed
holds its annual economic symposium, in Wyoming, U.S., August 24,
2023. REUTERS/Ann Saphir/FILE PHOTO
Fed officials themselves still largely see cuts, and in her speech,
Collins said the data means the window for an easing is now more
distant, noting “it may just take more time than previously thought
for activity to moderate, and to see further progress in inflation
returning durably to our target.”
Some in the Fed, notably Governor Michelle Bowman, have even argued
that if inflation doesn’t fall or gets worse the Fed may have to
hike rates again.
Collins said a move higher is “not part of my baseline.” With
monetary policy not on a pre-set path, however, she added: “I don't
think you can take possibilities as not being on the table, it
really depends on where the data take us.”
Collins also told Reuters the Fed is continuing to work to make sure
banks are in position to use the Fed’s lender of last resort
Discount Window facility now that the Bank Term Funding Program,
stood up just over a year ago to provide liquidity to banks amid a
period of stress, is no longer making loans.
Collins said stigma issues still dog the Discount Window - banks
have historically shunned borrowing there lest they signal to other
financial institutions and regulators they’re in trouble - but
progress is being made in getting banks ready to use it if needed.
The Fed is promoting preparedness and there’s “mutual interest” on
the part of banks to be ready to access the facility if needed, she
said.
(Reporting by Michael S. Derby; Editing by Dan Burns and Diane
Craft)
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