Fed’s Collins Signals Support for Slowing Pace of Interest Rate Increase
'Smaller increments will often be appropriate as we work to determine how much tightening is needed,' said Boston Fed President Susan Collins
A Federal Reserve official signaled support Friday for continuing to raise interest rates but at a somewhat slower pace than the central bank has moved this year to avoid risks of too much tightening.
The Fed raised its benchmark federal-funds interest rate this week by 0.75 percentage point, or 75 basis points, at its fourth consecutive meeting to a level between 3.75% to 4%. That level is high enough to slow economic activity, and the question now is how much higher rates must go to sufficiently restrain demand to bring down inflation, said Boston Fed President Susan Collins in remarks prepared for delivery at the Brookings Institution on Friday.
Officials signaled in the policy statement Wednesday that they could slow the pace of increases, and Ms. Collins’ remarks suggested she would favor doing so. “In my view, smaller increments will often be appropriate as we work to determine how much tightening is needed to reach a level of the funds rate that is sufficiently restrictive,” she said. “It is time to shift focus from how rapidly to raise rates, or the pace, to how high.”
She observed that an interest-rate increase of 0.5 percentage point “was considered a large move in the past.”
Ms. Collins said she didn’t think a significant slowdown in economic activity was needed to bring inflation down over time to the Fed’s 2% goal. “Importantly, as policy tightens further, the risks of overtightening increase,” she said.
At officials’ September meeting, a majority expected interest rates would need to rise to around 4.75% next year. Ms. Collins said it was too soon to signal how high rates would go, but that she thought officials’ median projection in September served a starting point for her own thinking. Whether rates would need to rise higher than that would depend on new data about the economy’s performance and outlook, she said.