Exclusive-Fed's Collins cautions against aggressive rate cuts given inflation issues

Core Viewpoint - The Federal Reserve Bank of Boston President Susan Collins emphasizes a cautious approach to monetary policy, advocating for gradual rate cuts due to ongoing inflation risks despite signs of labor market weakness [1][2][3]. Monetary Policy Outlook - Collins supports the recent quarter percentage point reduction in the overnight interest rate target range to between 4% and 4.25%, with potential gradual cuts to between 3.5% and 3.75% by year-end [3]. - The decision to cut rates is aimed at mitigating rising risks in the job market while maintaining a stance that can help alleviate inflation pressures [3]. Inflation and Labor Market Considerations - Collins highlights the need to balance inflation risks with labor market conditions, acknowledging the softening job market while stressing that both factors must be considered in interest rate policy decisions [2]. - There are concerns that aggressive rate cuts could exacerbate inflation risks, which would conflict with the Federal Reserve's mandate [3]. Diverging Views Among Fed Officials - There is a division among Federal Reserve officials regarding the direction of monetary policy, with some, like Cleveland Fed chief Beth Hammack, expressing concerns about inflation and opposing further rate cuts [4]. - New Fed governor Stephen Miran dissented in favor of a more aggressive 50-basis-point cut, while Michelle Bowman is also open to significant easing to address job market risks [5]. Inflation Dynamics - Collins notes that while some inflation indicators have moderated, the impact of Trump administration tariffs on key prices remains uncertain, potentially influencing future price pressures [6]. - There is a risk that prolonged high inflation could shift public expectations towards anticipating continued inflation, which is a scenario that should be avoided [6].