Boston Fed President Susan Collins said Friday that it’s clear the Fed has more work to do when it comes to taming decades-high inflation, detailing that work as additional interest rate increases followed by a period of holding rates at a “sufficiently restrictive” level for some time.
"Now that rates are in restrictive territory, the next phase of tightening should shift from a focus on pace to a focus on levels — determining the level needed to be sufficiently restrictive," Collins stated in prepared remarks for a speech at the Brookings Institution in Washington, D.C. "I expect it will be appropriate to continue raising rates, with the size of future increases determined by a holistic assessment of incoming information."
Collins added that she thinks the Fed should consider various rate hike sizes going forward, including the potential for an unprecedented fifth straight 75 basis point hike in December, as well as smaller increments.
“I note that a 50 basis-point move was considered a large move in the past,” she said, adding: “In my view, smaller increments will often be appropriate as we work to determine how much tightening is needed to reach a level of the funds rate that is sufficiently restrictive."
Collins stressed that it's premature to signal how high rates should go, noting that the median path for rate hikes in September’s Summary of Economic Projections can be taken as a starting point with the possibility of a higher path depending on incoming information.
"In determining appropriate policy," she explained, "I will assess how much financial conditions have tightened and look for evidence that our cumulative policy actions are slowing demand, cooling labor markets, and having the desired effects on wages and prices."
Collins also noted that while aggressive rate hikes have been appropriate so far, there is a risk of the Fed overtightening as rates move higher.
“Increasingly, these risks must be thoughtfully weighed against the risks of moving too slowly and allowing higher inflation expectations to become entrenched,” she said.
After the October jobs report showed the U.S. economy adding more jobs than expected, indicating an extraordinarily tight labor market, the next big data point for the Fed's fight against inflation will be the consumer price index (CPI) report on Thursday, November 15.
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