March 6 (Reuters) - Federal Reserve Bank of Boston President Susan Collins said on Friday she sees no looming need to change interest rates, with the outlook for easing monetary policy contingent on a further retreat to the 2% inflation target.
“Based on my outlook I see a patient, deliberate approach as appropriate” and “I do not see an urgency for additional policy adjustments,” Collins said in the text of a speech to be delivered before a gathering in Springfield, Massachusetts.
“My baseline features a still-uncertain inflation picture, with continued upside risks,” she said, adding “this, combined with recent evidence suggesting a relatively stable labor market, in my view argues for maintaining policy rates at their current, mildly restrictive levels for some time.”
To support an easing in what is now a federal funds target rate range of between 3.5% and 3.75%, Collins said she will look for “clear evidence” still-elevated inflation is moving back to the target, which “might occur” only in the latter half of this year.
Collins noted that in her outlook, “considerable economic uncertainty remains, exacerbated by recent geopolitical developments like the hostilities in the Middle East.” That said, she added “my baseline outlook is fairly benign – featuring continued solid economic growth, relatively balanced labor market conditions, and disinflation resuming later this year as tariff effects fade.”
On the job market, Collins said artificial intelligence could affect hiring rates and explained, “while hiring could pick up relative to last year’s sluggish pace, job gains are likely to remain modest.”
The bank president spoke on the same day as the release of government data showing unexpected job losses in February that could signal further weakness in the job market. The Fed lowered its interest rate target by three quarters of a percentage point last year to help buoy a weakening labor sector, but analysts are unclear whether the current weakness is tied to temporary factors or is the start of something more enduring.
The Fed is being further challenged by surging energy prices tied to the U.S.-Israel war on Iran. Rising gasoline prices could further drive up inflation and unmoor inflation expectations, which could complicate any move by the Fed to cut rates to help steady the job market.
The Fed is widely expected to hold interest rates steady at its March 17-18 Federal Open Market Committee meeting, with markets still projecting some combination of cuts later this year.
Reporting by Michael S. Derby; Editing by Andrea Ricci
