The U.S. economy risks tipping into a recession as the central bank seeks to ensure that high inflation does not take deeper root, Susan Collins warned in her first public remarks since becoming president of the Boston branch of the Federal Reserve.
Speaking at an event on Monday, Collins, whose term began in July, highlighted the challenges facing the Federal Reserve as it faces price pressures that have not only spread to a wide range of sectors, but are also much more difficult to eradicate.
While she said the Fed could bring inflation back to its 2% target with only a ‘more modest slowdown’ and ‘a bit higher unemployment’, she also pointed to the vulnerability of the economy. to a much more serious outcome.
“A significant economic or geopolitical event could push our economy into a recession as politics tightens further,” said Collins, who is a voting member of the Federal Open Market Committee this year and the first black woman to lead one of the branches. form the bank. “Furthermore, calibrating policy under these circumstances will be complicated by the fact that some effects of monetary policy operate with a lag.”
Collins is among the first senior officials to speak after the central bank implemented its third consecutive rate hike of 0.75 percentage points last week and announced further major increases to come.
Most officials now see the federal funds rate reaching 4.4% by the end of the year before peaking at 4.6% in 2023. It currently hovers between 3% and 3.25%.
“The FOMC’s actions since March, along with the guidance provided in its most recent projections, illustrate policymakers’ determination to tackle high inflation quickly and prevent it from becoming entrenched in expectations,” Collins said Monday.
The Fed’s tools had some limitations, she warned, particularly in addressing supply-side bottlenecks and labor shortages that have helped drive up unemployment. inflation at its highest level in about four decades.
Collins’ comments echoed those of Atlanta Fed President Raphael Bostic, who said in a CBS interview on Sunday that while job losses were expected during this tightening cycle, they could be lower than in the past.
Because employers have struggled so hard to find workers – resulting in one of the tightest labor markets in decades, most officials see the unemployment rate rising by just 4.4% in the years to come from its current level of 3.7%.
“There’s a very good chance that if we have job losses it will be less than what we’ve seen in other situations, and that’s what I’m betting on,” Bostic said.
“We’re going to do everything we can at the Federal Reserve to avoid deep, deep pain, and I think there are scenarios where that’s likely to happen,” he said.