Boston Fed President Collins sees further monetary policy adjustment

In a speech at the 23rd Annual Regional & Community Banker’s Conference, Boston Fed President Susan Collins says: “Looking ahead, preserving the current favorable economic conditions will require adjusting the stance of monetary policy, so as not to place unnecessary restraint on demand. A careful, data-based approach to policy normalization will be appropriate as we balance two-sided risks and remain highly attentive to both parts of our Congressional mandate – price stability and maximum employment… Where is inflation now? I’ll focus, as I often do, on core inflation, using the Fed’s preferred PCE measure. While it excludes the obviously important but very volatile categories of food and energy, it tends to more reliably capture underlying inflation trends. This indicator has declined significantly but remains elevated. And importantly, the disinflationary progress has resumed after an unexpectedly large inflation jump at the beginning of this year. I see this resumed progress as driven by economic developments that are broader and more solidly in place than at the end of last year, increasing my confidence that inflation is firmly on a trajectory to 2 percent… While housing inflation has also moderated some more recently, this is the stickiest component and remains above its pre-pandemic average. But there are good reasons to think that this stickiness in current shelter inflation reflects existing rents still catching up to new market rents. In fact, rent growth for newly signed leases has been at or below its pre-pandemic range for many months. While these data do not suggest emergence of new inflationary pressures, it is difficult to predict how long this rent catchup process may take… Turning to the labor market, the constellation of data points to notable softening from the unsustainably tight conditions a year ago. As Chair Powell noted in his August remarks at Jackson Hole, we do not seek or welcome further cooling in labor market conditions.2 And the recent data, including September’s unexpectedly robust jobs report, bolster my assessment that the labor market remains in a good place overall – neither too hot nor too cold. I will mention just a few of the many indicators that my team and I review when assessing labor market health. First, the unemployment rate rose from very low levels over the past year – but has recently ticked back down and remains low by historical standards. Second, although job growth slowed notably in recent months, it remains relatively solid. Here, I’ll note that recent job growth has been somewhat concentrated in a few sectors, which is one factor I continue to monitor.”