Fed’s Collins sees fighting inflation costing jobs; recession is not inevitable

A person runs groceries at El Progreso Market in the Mount Pleasant neighborhood of Washington, DC, U.S., August 19, 2022. REUTERS/Sarah Silbiger

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Sept 26 (Reuters) – The need for the Federal Reserve to cut unacceptably high inflation will cause the jobless rate to rise, but a recession is not inevitable, Boston Fed Chair Susan Collins said in her statement on Monday. first public speech.

“I anticipate achieving price stability will require slower job growth and somewhat higher unemployment,” Collins said in prepared remarks to a local Boston chamber of commerce, though she made it clear that it fully supports the more aggressive push from the US central bank. to stifle price pressures that are reaching 40-year highs.

Collins, who is a voting member of the Fed’s policy-making committee this year, nevertheless remained hopeful that the inflation rate, which the central bank’s preferred measure is more than three times its target 2%, could be brought under control without a pronounced spike in layoffs, an increasingly shaky thesis among his colleagues.

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“I believe the goal of a more modest, albeit difficult, downturn is achievable,” Collins said, citing the strength of business and household finances as well as labor shortages as the basis for the move. hope that a slowdown in activity could have a more modest effect. impact on the unemployment rate.

Fed policymakers raised the central bank’s benchmark overnight interest rate by three-quarters of a percentage point last week, the third straight hike of this magnitude, and acknowledged the “pain” ahead for the economy as they seek to cool demand.

The Fed’s key rate is now in a range of 3.00% to 3.25%, but the central bank’s latest economic forecast shows that borrowing costs will likely have to rise faster and further than expected. previously thought, slowing growth and causing unemployment to rise. degree historically associated with recessions.

Collins added that, like other members of the committee, she will be looking for “clear and convincing signs” that inflation is falling as she analyzes a range of incoming economic data to guide her policy views.

Investors are currently seeing a 70% chance of another 75 basis point hike at the Fed’s next policy meeting on Nov. 1-2, according to an analysis of federal funds futures compiled by the CME Group.

Collins also noted in his speech the downside risks to his forecast. “A significant economic or geopolitical event could push our economy into a recession as politics tightens further,” she said. “Furthermore, calibrating policy under these circumstances will be complicated by the fact that some effects of monetary policy operate with a lag.”

Collins, who holds a doctorate in economics, took over as Boston Fed chief on July 1. She was previously an academic specializing in emerging markets, exchange rates and trade, and also served as a Chicago Fed chief for nine years.

She is the first black woman to head one of the Fed’s 12 regional banks, a fact she referred to at the top in her speech on Monday. “I view this as a privilege, a responsibility and an opportunity…to broaden the understanding of how our economy works and how it could work better,” Collins said.

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Reporting by Lindsay Dunsmuir; Editing by Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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