Federal Reserve Bank of Boston President Susan Collins said Thursday the central bank may be at a point where it could pause interest rate hikes due to "promising signs" that inflation is moderating.
“While inflation is still too high, there are some promising signs of moderation,” Collins said in a speech at Community College of Rhode Island. “I believe we may be at, or near, the point where monetary policy can pause raising interest rates.”
Collins says pausing would offer the Fed the ability to more fully assess the economic impact of the central bank’s 10 rate hikes and tightening credit conditions. The recent stresses in the banking system, she said, could do some of the Fed’s work for it by cooling demand.
The Fed at its last meeting raised the target range for its benchmark interest rate by 0.25%, to its highest level since September 2007. The move pushed the fed funds rate to a new range of 5%-5.25%.
As part of its most aggressive rate hiking campaign since the 1980s, the US central bank has increased the target range for its benchmark interest rate by 5 percentage points since March 2022.
Federal Reserve officials were divided at their last policy meeting on what the central bank’s next move should be, according to minutes released Wednesday. Several officials were leaning toward a pause and many wanted to keep options open given uncertainty about the outlook.
Markets are pricing in a better than 60% chance of a pause at the next meeting, as of Thursday morning.
Other Fed officials have clarified their latest thinking in recent days.
Fed Chair Jerome Powell said Friday he is still keeping options open, emphasizing that future decisions on interest rate moves will be made on a "meeting by meeting" basis.
He also said rates may not need to rise as high as previously expected as a banking crisis tightens credit conditions, even with inflation well above the Fed's 2% target.
St. Louis Fed President James Bullard earlier this week said he thought the Fed should do two more rate hikes, and Fed Governor Christopher Waller said Thursday he doesn’t think the Fed should stop raising interest rates until there is clear evidence inflation is cooling. Waller noted he too is uncertain about what to do in June.
Dallas Fed President Lorie Logan said last week that as of right now a pause is not in order, though that could change in the coming weeks depending on incoming data.
Collins, in her speech Thursday, said it’s important to make decisions meeting by meeting.
“I also believe it is important to make each policy decision based on a wholistic assessment of information available at the time – and the next policy meeting will be in mid-June,” she said.