Federal Reserve's Collins: The number of interest rate cuts in 2025 will be lower than previously expected
Boston Federal Reserve President Collins stated that the number of interest rate cuts expected in 2025 will be lower than previously anticipated, mainly due to strong employment data and persistent inflationary pressures. She emphasized the need for patience, believing that there will be two rate cuts this year, down from the four predicted in September. Collins pointed out that although inflation may decline, progress could be uneven, and the uncertainty of the new government's fiscal policy has increased the difficulty of economic and inflation forecasts
According to the Zhitong Finance APP, Boston Federal Reserve President Collins stated that due to strong employment data and persistent inflation, she is inclined to expect smaller rate cuts in 2025 than previously anticipated a few months ago.
Collins emphasized the need for patience, stating that her expectations for interest rates are consistent with the median forecasts released by Federal Reserve officials after the December meeting. This indicates that there will be two rate cuts this year, down from the four predicted in September.
"Over time, further easing of policy is appropriate, but it may be less than I envisioned in September," Collins said in an interview with Bloomberg News on Wednesday. "I believe it is likely appropriate to take the time to truly and patiently assess the data comprehensively as we consider policy for 2025—maintaining analytical capability and patience."
Federal Reserve officials lowered rates for the third consecutive time at the December meeting, bringing the target range for the benchmark rate to 4.25% to 4.5%. Fed Chair Powell stated after the meeting that officials will focus on further developments in inflation when considering future rate adjustments.
The Boston Federal Reserve President will vote on this year's policy decisions, stating that rates remain at restrictive levels, but after the central bank has lowered borrowing costs by a full percentage point since September, rates are closer to what is known as neutral. The neutral rate refers to a rate setting that neither stimulates nor slows economic growth.
According to futures contract pricing, investors widely expect that Federal Reserve policymakers will keep rates unchanged at the Washington meeting on January 28-29.
Inflation Volatility
Collins stated that she still expects inflation to decline, although upside risks have increased, and progress may be "bumpy" and "uneven." "My baseline forecast is that inflation will continue to decline, perhaps more slowly than I had anticipated."
She noted that good news on inflation would support easing policy as soon as possible. However, if the data is unclear, officials may wish to wait longer. In fact, Collins mentioned that the uncertainty surrounding the fiscal policy of the incoming Trump administration makes it more difficult to predict how the economy and inflation will develop.
"There is a lot of uncertainty about what policy changes may occur after the new government takes office," she said. "I think we do not have enough information to really consider how to view this issue."
Collins indicated that her level of concern about the labor market is not as severe as before. However, she stated that she will closely monitor any deterioration in employment conditions, noting that wage growth has slowed down over the past year and has become more concentrated.
"In terms of the labor market, I was previously more concerned about potential vulnerabilities. Those concerns have eased," she said.
She added that overall, the U.S. economy is in "good shape."