Fed’s Collins Supported Rate Cut After a ‘Close Call’ Decision
Boston Federal Reserve President Susan Collins recently expressed her support for a reduction in interest rates due to shifting inflation expectations. This decision, made during last week’s Federal Open Market Committee (FOMC) meeting, was not made lightly, according to Collins.
Details of the Rate Cut Decision
On December 12, the Federal Reserve lowered its target range for the federal funds rate by 25 basis points, bringing it to between 3.5% and 3.75%. Collins described her support for this decision as a “close call” as she considered the changing landscape of inflation.
Inflation Outlook
Collins noted that available information indicated a shift in the risks associated with inflation. She stated that scenarios predicting a significant increase in inflation appeared to be less likely than before. This change in perspective influenced her decision to back the rate cut.
Policymaker Dynamics
- Two policymakers favored maintaining the current rate.
- One member proposed a more significant cut than the 25 basis points agreed upon.
Initially, Collins had reservations about supporting a rate cut, given her consistent concern over elevated inflation levels and their duration above target. This earlier apprehension positioned her as a potential dissenter in the rate cut discussions.
Looking Ahead
Despite her recent support for the rate cut, Collins emphasized the need for greater clarity regarding inflation trends before making further policy adjustments. She reiterated the importance of achieving the Federal Reserve’s target inflation rate of 2% in future decisions.
In her remarks, Collins pointed out the significance of aligning the FOMC’s forward guidance with the statements from December 2024, which led to a pause in rate cuts. This careful monitoring indicates a commitment to ensuring that inflation returns to the target level effectively.
