New Boston fed chief sees “modest slowdown” as possible

With anxiety about a possible recession on most everyone’s mind, the newly-minted head of the Federal Reserve Bank of Boston told New England business leaders Monday that while getting inflation under control will cause pain for some Americans, she thinks “a more modest slowdown” is a realistic possibility.

Dr. Susan Collins, making her first public speech as president and CEO of the Boston Fed, told the Greater Boston Chamber of Commerce that the central bank has little power over factors on the supply side of the equation that are leading to the persistently high inflation that has been crushing families and workers in Massachusetts and across the country for the better part of a year.

The Fed can’t alleviate pandemic-related bottlenecks in global supply chains, can’t predict how the ongoing war in Ukraine will further impact energy prices, and can’t influence labor force pressure points like an aging population and decreased immigration, she said.

But the Fed can raise interest rates to slow down the demand side of the puzzle. And while the Fed works towards a goal of 2 percent inflation (the Consumer Price Index rose 8.3 percent in August), Collins said she thinks that a significant downturn can be avoided, though it will “require slower employment growth and a somewhat higher unemployment rate.”

“There are reasons to be somewhat more optimistic about the ability to achieve the necessary slowing of demand without leading to a significant downturn this time around. Household and business balance sheets are considerably stronger than in previous tightening cycles, reducing the risk of a significant retrenchment in spending and investment as interest rates rise,” she said Monday morning. “Labor market conditions also differ from past cycles. Firms seem to have too few workers, not an excess, suggesting that this time a slowdown in activity may have a smaller impact on employment.”

Collins, whose most recent job was as provost and executive vice president for academic affairs at the University of Michigan, was hired as president and CEO of the Boston Fed in February and started the job in July. She has ties to the Boston area, having earned her undergraduate degree at Harvard University and her Ph.D. at the Massachusetts Institute of Technology. Her career has also included stints as senior staff economist at the President’s Council of Economic Advisers, professor at Georgetown University, senior fellow in economic studies at the Brookings Institution, visiting scholar at the International Monetary Fund, and teaching economics at Harvard.

Collins said she was born in Scotland to Jamaican parents and grew up in New York City. She is the first Black woman to lead one of the Federal Reserve’s regional banks. Collins’ term as president will run until Feb. 28, 2026, the Fed said, when she and every other Reserve Bank president will be evaluated for reappointment.

Eric Rosengren, the Boston Fed’s previous president, retired last September after 14 years leading the regional branch of the central bank.

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