Senior officials from the Federal Reserve speak frequently: Be cautious about interest rate cuts and rely on data

In 2025, FOMC voter and Boston Fed President Collins stated that policymakers should adopt a cautious, data-dependent approach when lowering interest rates to help maintain the strong momentum of the U.S. economy.

Collins said that recent data, including the September employment report released last week, all indicate that the overall condition of the U.S. labor market is "good." She added that she is now more confident that inflation will "promptly" return to the Fed's target while the labor market continues to develop healthily.

Speaking at a community bankers conference hosted by the Boston Fed on Tuesday, Collins said, "Looking ahead, to maintain the current favorable economic conditions, it is necessary to adjust the stance of monetary policy to avoid unnecessary suppression of demand. When balancing price stability and maximizing employment, a cautious, data-dependent policy normalization approach will be appropriate."

The Fed cut rates by 50 basis points last month, initiating a looser cycle beyond expectations. Fed Chair Powell stated that the rate cut aims to boost the economy and reflects officials' increasing confidence in inflation reaching the 2% target.

The latest data shows that the U.S. labor market added 254,000 new jobs last month, with the unemployment rate dropping to 4.1%, providing policymakers with more room to slow down the pace of rate cuts. This stronger-than-expected report alleviated concerns about the labor market, easing pressure on the Fed.

Collins mentioned that sectors sensitive to interest rates are feeling the impact of restrictive monetary policy. The Boston Fed President also noted that the labor market is cooling down, economic growth is slowing, and the U.S. economy is more vulnerable to shocks.

She said, "My confidence in declining inflation has increased, but the risks of economic slowdown have also increased, beyond what is necessary to restore price stability."

Also on Tuesday, FOMC voter and Atlanta Fed President Bostic for 2024 stated that the Fed must balance various competing risks when considering the speed of further rate cuts in the coming months. Bostic said that while inflation risks have decreased, threats to the labor market have increased, despite the economy remaining strong.

Bostic said in a dialogue hosted in Atlanta on Tuesday, "I remain focused on the inflation target and ensuring that we can achieve this goal. With inflation having fallen so much, the employment aspect of the task is becoming more prominent."

Bostic previously stated that if the weakness in the labor market accelerates faster than expected, he is open to another 50 basis point rate cut, but if the labor market remains strong, officials "can be more patient."

When asked about the impact of climate change, Bostic pointed out that the frequency of hurricanes affecting the southeastern United States is higher, causing disruptions to the supply chain and affecting certain markets. He mentioned that as companies face higher payout amounts, insurance costs are also rising, making it more difficult for people to afford housing expenses.

As a regulator, he also expressed his hope to ensure that banks are prepared to deal with climate-related risks. Bostic said, "We need to ensure that banks recognize that the risks of their loan portfolios may undergo fundamental changes." "I hope the banks are prepared."

Another senior official from the Federal Reserve, Vice Chairman Jefferson, stated that currently the risks facing the Federal Reserve's employment and inflation targets are nearly equal. Speaking at an event at Davidson College in North Carolina on Tuesday, he said, "The balance of risks for our two mandates has shifted - with a decrease in inflation risks and an increase in employment risks, these risks have roughly balanced out."

In his first public speech since May, Jefferson stated that when considering additional adjustments to the federal funds target range, he will assess new economic data and risk balances. He added that decisions will be made based on the circumstances of each meeting.

The Vice Chairman mentioned that despite the labor market cooling off from an overheated state, the economy is still growing at a "solid pace." He noted that the inflation rate is closer to the Federal Reserve's 2% target and will continue to trend towards this target.

Jefferson said, "The good news is that the rise in the unemployment rate is limited and gradual, with the unemployment rate still at historically low levels. Nevertheless, the cooling of the labor market is evident."

Jefferson also provided a detailed history of the discount window, which is the Federal Reserve's primary emergency lending facility. Following the collapse of Silicon Valley Bank and other regional lending institutions last year, policymakers encouraged all banks to join the discount window and engage in practice usage in preparation for emergency liquidity situations