Boston Fed President Susan Collins: Higher Unemployment, Slower Growth Coming

WASHINGTON (AP) – Susan Collins, the new president of the Federal Reserve Bank of Boston, said Monday that higher unemployment will be necessary to lower inflation. from abnormally highbut also suggests any economic slowdown is likely to be modest.

In his first speech as Fed president in Boston, Collins said the economy is resilient enough to withstand the higher interest rates needed to combat inflation, near the highest levels in recent memory. 4 decades. Her remarks echo similar remarks made by Raphael Bostic, president of the Atlanta Fed, on Sunday. Fed Chairman Jerome Powell has also said that fighting inflation will cause “pain” for households and businesses.

“Achieving price stability will require slower job growth and slightly higher unemployment,” Collins said in a speech to the Greater Boston Chamber of Commerce.

Collins acknowledged that the job loss was painful and said that “there is anxiety about the possibility of a significant recession.” Still, she insists that “a more modest deceleration goal, while challenging, is achievable.”

Her comments added to an ongoing debate about how consistently raising interest rates by the Federal Reserve – the fastest in more than 40 years – will hurt the economy. By raising the benchmark interest rate, the Fed is pushing the cost of a wide range of consumer and business loans, including mortgages, auto loans and credit cards.

Fed officials hope those increases will achieve a “soft landing” by slowing consumer and business spending enough to reduce inflation but not too much to trigger a recession.

However, many economists increasingly doubt that such an outcome is possible. The Fed raised its key interest rate to around 3% to 3.25%, a 14-year high, but job growth remains solid and consumers are still spending at a decent rate. That suggests the Fed may have to push interest rates higher than expected to slow consumer demand and inflation.

At its policy meeting last week, the Fed raised short-term rates by three-quarters of a point for the third time in a row. Fed Chairman Jerome Powell, at a press conference after the meetingsaid that “the chance of a soft landing may diminish” as the Fed steadily increases borrowing costs.

“No one knows if this process will lead to a recession or, if so, how important that recession will be,” Powell said.

One challenge for the Fed is that last week, the Fed also released its quarterly economic and interest rate forecasts. They show that Fed policymakers expect the unemployment rate to hit 4.4% by the end of next year, up from 3.7% currently.

According to a general rule discovered by economist Claudia Sahm, for every second World War the unemployment rate rises by half a percentage point in a few months, a recession is followed.

Collins is one of 12 voting members of the Fed’s policymaking committee and the first black woman to chair a regional Fed bank. She was sworn in on July 1. Collins previously served as executive vice president at the University of Michigan and served on the board of directors of the Chicago Fed.

In a question-and-answer session after his speech, Collins also said that inflation, which hit 9.1% in June from a year earlier, and has since fallen to 8.3%, “yes” may have peaked.”

Even if that were true, many economists fear it will be difficult to bring inflation near the Fed’s 2% target. The Fed is not expected to do until the end of 2024, according to its most recent projections.

Atlanta Fed President Bostic, in an interview Sunday on CBS News’ “Face the Nation,” also said “we need to slow down” to keep inflation in check.

“But I think we will do all we can at the Federal Reserve to avoid deep pain,” he added.

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