Fed’s Collins expresses hope that inflation can be tamed without hitting jobs

Boston Federal Reserve President Susan Collins expressed confidence Friday that policymakers can tame inflation without doing too much damage to employment.

“By raising rates, we are aiming to slow the economy and bring labor demand into better balance with supply,” Collins said in prepared remarks for a Boston Fed conference on the labor market. “The intent is not a significant downturn. But restoring price stability remains the current imperative and it is clear that there is more work to do.”

She spoke as the Fed is in the midst of an aggressive campaign to bring down runaway inflation.

A series of rate hikes has brought the central bank’s overnight borrowing rate to a range of 3.75%-4%, and virtually all other Fed officials have said they expect more increases to come.

In her remarks, Collins noted the importance of bringing down inflation and recognized that the Fed’s moves could exact a price. Collins is a voting member of the rate-setting Federal Open Market Committee, which next meets Dec. 13-14, when it is largely expected to raise its funds rate another half percentage point.

“I remain optimistic that there is a pathway to re-establishing labor market balance with only a modest rise in the unemployment rate – while remaining realistic about the risks of a larger downturn,” Collins said, adding that she thinks “there is a pathway to reestablishing price stability with a labor market slowdown that entails only a modest rise in the unemployment rate.”

Her comments follow a flurry of similar remarks from her colleagues.

St. Louis Fed President James Bullard rattled markets Thursday when he said the funds rate could need to rise to as high as 7%. Other officials also said they see more hikes and expect rates to remain elevated.

Markets took some hope in a report last week showing that the pace of inflation increases has slowed. But Collins said the “the latest data have not reduced my sense of what sufficiently restrictive may mean, nor my resolve.”

“Sufficiently restrictive” is a benchmark the Fed has set in determining where rates need to go to bring down inflation. Current projections are around 5%, though that could change when FOMC members submit their revised outlook for rates and the economy at next month’s meeting.

“At the Fed we are committed to returning inflation to the 2 percent target in a reasonable amount of time. Only when inflation is low and stable can the economy in general — and the labor market in particular — work well for all Americans,” Collins said.