Fed’s Collins sees inflation fight costing jobs; recession not inevitable

September 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, Boston Fed President Susan Collins said in her first public speech on Monday .

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

Collins, who is a voting member of the Fed’s policy-setting committee this year, nonetheless hoped that inflation, which is more than triple its 2% target on the central bank’s preferred measure, could be tamed without a sharp rise in layoffs, 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 that she, like others on the committee, will be looking for “clear and compelling signs” of inflation slowing as she analyzes a range of incoming economic data to guide her 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 pointed out the downside risks to her forecast in her speech. “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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Collins, an economist with a PhD, took over as head of the Boston Fed on July 1. Previously, she was an academic specializing in emerging markets, exchange rates and trading, and served as a Chicago Fed governor for nine years.

She is the first black woman to head one of the 12 regional Fed banks, a fact she highlighted in her speech Monday. “I see this as a privilege, a responsibility and an opportunity … to increase understanding of how our economy works and how it could work better,” Collins said. (Reporting by Lindsay Dunsmuir; Editing by Paul Simao)

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