Fed’s Collins says inflation fight to cost jobs, recession not inevitable

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Sept 26 (Reuters) – The Federal Reserve’s need to bring down unacceptably high inflation will push the unemployment rate higher, but a recession is not inevitable and there are signs that price pressures may already have peaked, said Susan Collins, President of the Boston Fed, in her maiden public address on Monday.

“My expectation is that achieving price stability will require slower job growth and a slightly higher unemployment rate,” Collins told a local Boston Chamber of Commerce, though she made it clear that she supported the Federal Reserve’s more aggressive push to quell price pressures fully supported runs at 40 year highs.

Collins, who is a voting member of the Fed’s policy-setting committee this year, nonetheless maintained his view that the inflation rate, which is the central bank’s preferred measure, is more than three times its 2% target, with no outspoken Taming layoffs as part of a so-called “soft landing,” an increasingly faltering thesis among her peers.

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“I believe that the goal of a more moderate slowdown, while challenging, is achievable,” Collins said, citing the strength of corporate and household finances and labor shortages as basis for hope that a slowdown in activity could have a more modest impact on the unemployment rate .

Fed policymakers hiked the central bank’s benchmark overnight interest rate by three-quarters of a percentage point last week, the third straight hike of this magnitude, and conceded the economy is in for “pain” as they try to cool demand.

The Fed’s policy rate is now in a range of 3.00% to 3.25%, but the central bank’s latest economic forecasts show that borrowing costs will likely have to rise faster and further than previously thought, causing growth to slow to a crawl and accelerate will lead to increases in unemployment degrees historically associated with recessions.

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Collins added after her speech that she expects the economy to grow much more slowly this year and even slower next year, but gave no specific estimates. Unlike several of her Fed peers, she pointed out that price pressures may already have peaked as supply chain issues unravel.

“I think it’s very likely that inflation is about to peak and may have already peaked,” Collins said, noting that she, like others on the committee, will be looking for “clear and compelling signs” that that inflation falls when they analyze a range of incoming economic data to guide their policy views.

According to an analysis of Fed fund futures contracts compiled by CME Group, investors currently see a 70% chance of another 75 basis point hike at the next Fed policy meeting on November 1-2.

Collins also noted the downside risks to her forecast. “A major economic or geopolitical event could push our economy into recession if politics tightens further,” she said. “Furthermore, calibrating policy in these circumstances is complicated by the fact that some effects of monetary policy are lagged.”

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She took over the leadership of the Boston Fed on July 1st. Collins, who has a PhD in economics, was previously an academic with previous economic research focused on emerging markets, exchange rates and trade. She was also a director at the Chicago Fed for nine years.

Collins is the first black woman to head one of the 12 regional Fed banks, a fact she raised high in her speech Monday. “I see this as a privilege, a responsibility and an opportunity … to increase understanding of how our economy works and, more importantly, how it could work better,” Collins said.

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Reporting by Lindsay Dunsmuir; Edited by Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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