A pause on interest rate hikes? Boston Federal Reserve president talks inflation at CCRI

WARWICK − The Federal Reserve could put a pause on raising its short-term interest rate at its meeting in June, Federal Reserve Bank of Boston President Susan Collins said Thursday, speaking for herself, at an event at the Community College of Rhode Island.

The Federal Reserve is tasked with taming rampant inflation while keeping the country at "maximum sustainable employment."

Collins gave a short speech and answered written questions from students on Thursday morning, an event moderated by CCRI President Megan Hughes. Hughes is on the bank's board of directors. She is set to leave the college by the end of August.

The event was the first time Collins has visited a college since assuming her role as the bank's president 10 months ago, which she said was partly to signal how important she thinks community colleges are in the education and labor ecosystem.

Before the event, Collins spoke to The Providence Journal.

Feds could pause interest rate hikes at June meeting

Collins said Federal Reserve officials may be preparing to take a pause on raising rates when they meet in June.

Minutes from their meeting at the beginning of the month showed a divide in positions, with "some" foreseeing more interest rate hikes and others expecting a pause.

Split decision: Fed officials were divided over a June pause in interest rate hikes, meeting minutes show

"There are some promising signs of moderation," Collins said, referring to inflation, which has slowed from 9.1% in June 2022 to 4.9% in April.

Collins, asked by a student if the country is facing a recession, said there will probably be some job losses but that she does not foresee a significant downturn.

Business owners have told Collins that they continue to have a hard time filling positions because the labor market is so tight.

The amount that the Federal Reserve has already increased its short-term interest rates from nearly zero in March 2020 to the current rate of 5.25%, the highest rate in 17 years.

Collins said she expects banks to begin to be tightening their lending standards, leading to less money being available in the market. Tamping down inflation is key for workers, too, so increased wages are not canceled out by inflation and to prevent a wage-price spiral, where rising wages lead to higher prices, leading to demand for higher wages.

Rhode Island has a lot of resilience in its economy and a strong labor market, she said.

Not quite red hot: RI job market still 'very warm' as pandemic recovery continues

Hughes and Collins both said business owners seem to have a much rosier view of their own futures while also thinking that their neighbors, their states and the country could easily be headed for a downturn even while their futures seem bright.

Collins said there is a risk that the perception of a downturn, "self-fulfilling pessimism," could turn into the reality, much as the expectation of rising inflation can create rising inflation.

What does all this mean for the housing market?

The Federal Reserve's short-term interest rate affects, but is not a direct cause of, changes in mortgage rates.

While mortgages rates have risen significantly since bottoming out in December 2020 in the mid-2% range – currently at 6.57% for a fixed-rate 30-year mortgage – people will get used to higher rates, Collins said. People with those great interest rates also appear unwilling to move and take on new mortgages at higher rates.

In 2018, rates hit their 10-year peak at 4.94%, according to data from the mortgage lender Freddie Mac.

Housing prices in New England have historically been slower to rise than the national average even if they are now staying high.

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In April, the median price of a single-family home in Rhode Island was $425,000, just $5,000 shy of the high-price mark set in June 2022.

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Material from the Associated Press and USA Today were used in this report. Reach reporter Wheeler Cowperthwaite at wcowperthwaite@providencejournal.com or follow him on Twitter @WheelerReporter.

This article originally appeared on The Providence Journal: Boston Fed President Susan Collins talks interest rates at CCRI event