Inflation Concerns Drive Need for Rate Hikes
Federal Reserve Bank of Boston President Susan Collins has stated that the banking system is robust, and additional interest rate increases are necessary to combat inflation. During a conference in Washington, Collins emphasized that inflation is still too high and more work is required to reach the Federal Reserve's 2% target associated with price stability.
Officials Support Additional Tightening Measures
Collins's stance aligns with that of other Federal Reserve officials, who raised interest rates by a quarter point last week and hinted at possible further tightening. Although Fed Chair Jerome Powell had previously suggested a faster pace, such expectations diminished following the collapse of Silicon Valley Bank.
Collins Favors Quarter-Point Increases for Inflation Management
The Boston Fed chief does not vote on monetary policy decisions this year but sees quarter-point increases as the "appropriate" pace to bring rates to a level that effectively curbs inflation. Collins believes the Federal Reserve can lower inflation without causing a recession but acknowledges that some unemployment increase will be necessary.
Uncertainty Around May's Fed Meeting
Collins mentioned that it is too early to determine the appropriate action for the May Federal Reserve meeting.
Tighter Lending Standards May Offset Rate Hikes
Despite recent banking stress, Collins believes tighter lending standards could later reduce the need for further rate increases. She noted that the banking system remains strong and resilient, and such developments might help slow the economy and decrease inflationary pressures.
Disagreements on Rate Cuts in 2023
While Collins does not foresee any rate cuts this year, traders disagree, partly due to expectations that the banking crisis will push the US closer to recession. Nevertheless, swift action from federal authorities has helped stabilize the banking system and increased international access to dollars.
Federal Reserve Monitoring and Preparedness
Collins assured that the Federal Reserve would continue to monitor financial conditions closely and is ready to use all available tools to maintain the banking system's safety and soundness.