To The Moon

Boston Fed President Susan Collins stated that she agrees with the objections raised by several colleagues during last week's monetary policy meeting regarding the wording of the Federal Reserve's post-meeting statement. The statement had implied that the central bank would eventually resume interest rate cuts. In an interview, Collins said she "strongly supports" the decision to keep interest rates unchanged but also favors revising the statement's wording so it no longer so closely aligns with the "implicit assumption that the next move will be a rate cut." Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari all supported the decision to hold rates steady on April 29 but opposed the expression of a so-called "easing bias" in the statement. In a separate interview on Thursday, Hammack stated that she found the FOMC statement "somewhat misleading, at least from my current assessment of the economic conditions." Collins is not a voting member this year on the rate-setting Federal Open Market Committee (FOMC). However, her views on the statement's wording highlight a gradual shift within the FOMC away from considering near-term rate cuts. Her comments indicate that Collins is among a growing number of officials who want the Fed to more clearly signal that the "next policy move could be either a rate hike or a rate cut." This dynamic could make it more difficult for Kevin Warsh, President Trump's nominee for Fed Chair, to push for rate cuts after he is confirmed by the Senate in the coming weeks. Warsh is expected to be leading the Fed by the time of the June 16-17 policy meeting. San Francisco Fed President Mary Daly suggested in an interview on Thursday that her stance differs from the dissenters, downplaying the committee's internal disagreement over the statement's wording. Daly stated, "I think the wording of the statement is less important than the actual actions of the Fed's rate-setting committee. The real signal from the meeting is that there was unity on the decision to hold rates steady." In a comprehensive interview at the Boston Fed headquarters, Collins expressed that, due to energy shocks stemming from Middle East conflicts hindering the Fed's progress toward its 2% inflation target, she favors a "more agnostic" stance regarding the future path of interest rates. She believes rates might need to remain unchanged "for a longer period before any further easing." However, under specific circumstances, the Fed might also need to consider raising rates. Collins said, "I do think there are scenarios where we would need to seriously consider the possibility of increasing rates," while emphasizing that this is not her baseline expectation. Collins has long advocated for "patience" in monetary policy and expressed hesitation about cutting rates multiple times last fall. She indicated that her concerns about price pressures are increasing, as the Fed's preferred inflation gauge rose to 3.5% in March and gasoline prices jumped to their highest level since 2022. Collins stated, "My greater focus is on the persistence of inflation." She added that, with the ongoing global spillover effects from conflicts, supply chain disruptions could cause price increases to spread from energy to food. She believes interest rates should be maintained at their current "moderately restrictive" level, but "if the inflation trajectory clearly moves in the wrong direction," policymakers will "need to reassess the appropriate policy stance." Collins said her "baseline scenario" (the most likely outcome) is for inflation to accelerate slightly above 3.5% in the coming months before falling back to near 3% by year-end. However, with the ongoing conflict involving Iran, the probability of an alternative scenario with "more severe after-effects" has risen. Additionally, the implementation of new tariffs—some of which have been halted by the Supreme Court—could also create upward price pressures. On the other side of the Fed's dual mandate, the April jobs report, scheduled for release on Friday, is expected to show slower employment growth, while the unemployment rate is forecast by economists to remain unchanged at 4.3%. Collins noted that the labor market shows signs of "unusual balance"—with low unemployment but also low hiring rates. She pointed out that demand remains resilient against a backdrop of strong consumer spending. But inflation remains Collins' primary concern. "One reason I'm so concerned about inflation is that I recognize its impact on people's lives," she said. "The price level is already high." Collins stated that containing high inflation will allow the Fed to foster a more dynamic and inclusive economy, and the labor market is already showing signs of stabilization. This was a perspective she shared during a full day of visits with real estate and education professionals in Rhode Island on Wednesday. The feedback she received often related to rising costs throughout the economy and labor market shifts where artificial intelligence is replacing entry-level positions typically filled by new graduates. Rhode Island's unemployment rate is slightly higher than the national rate of 4.3%. Businesses in the housing market also pointed to signs of a "two-tier economy"—with developers focused on building luxury apartments to maximize profits. Meanwhile, employers noted that a lack of affordable housing is an obstacle to attracting and retaining workers statewide. "I see areas of vibrancy, but I also hear feedback about areas that are struggling and have less optimistic prospects," Collins said. "This is something we take very seriously." New York Fed President John Williams also spoke on Thursday, stating that tariffs and energy shocks have disrupted the process of disinflation, but he pledged that the U.S. central bank will "ensure" inflation returns to its target level.