MNI: Fed’s Collins Favors ‘Actively Patient’ Approach to Rates

Federal Reserve Bank of Boston President Susan Collins said Tuesday the impact of tariffs may be lessened somewhat by an ability of firms to absorb lower profit margins, but added that an “actively patient” approach to monetary policy is appropriate amid uncertainty.

"In my view, the economy continues to be in a good place overall, close to the Congressionally mandated objectives of price stability and full employment," she said in prepared remarks. "However, going forward, I expect to see some upward pressures on inflation, as well as some downward pressures on employment and economic growth."

Tariffs should slow demand and hiring, "thought not necessarily by a large amount," and will boost inflation over the second half of the year. Core PCE inflation will be in the vicinity of 3% by year's end, before resuming its decline, she said. 

"Financial data point to the possibility that the impact of tariffs may be lessened somewhat by an ability for firms to decrease profit margins and for consumers to continue spending, despite higher prices," Collins said. (See: MNI INTERVIEW: Fed's Daly: Time To Think About Adjusting Rates) 

RISKS TO BASELINE

Collins said she could not rule out scenarios with more persistent effects from tariffs, as well as ones where the impact is even more subdued. "Calibrating appropriate policy in this context is challenging. However, continued overall solid economic conditions enable the Fed to take the time to carefully assess the wide range of incoming data."

"Thus, in my view, an 'actively patient' approach to monetary policy remains appropriate at this time," she said in a speech to the National Association for Business Economics. (See: MNI INTERVIEW: Bostic Backs Go-Slow On Rates As Tariffs Linger) 

Core goods inflation "is currently running above the rates that prevailed before the pandemic" and "some of these recent movements in goods inflation are likely tariff-related." 

The labor market is generally healthy, though with some signs of labor demand moderating. "So far, the moderation in labor demand has not placed significant upward pressure on the unemployment rate. This likely reflects, in part, slower growth in labor supply from reduced immigration," Collins said.