Boston Fed President Agrees with Removing 'Easing Bias' from FOMC Statement

President Collins Interview with Bloomberg

Susan Collins, President of the Federal Reserve Bank of Boston, stated on May 7 (local time) that she agrees with the three committee members who had called for the removal of 'easing bias' (a signal for rate cuts) language from the April Federal Open Market Committee (FOMC) statement.

In an interview with Bloomberg that day, President Collins said she "strongly supports" the decision to hold rates steady, but also agreed with the views of those committee members who insisted on deleting the statement language that hinted at the resumption of rate cuts.

Agrees with Removing 'Additional Adjustments' Language That Implies Rate Cuts from the Statement

At the April FOMC, there were as many as four dissenting opinions regarding the decision to keep rates unchanged. Among them, Loretta Mester, President of the Federal Reserve Bank of Cleveland, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, and Lorie Logan, President of the Federal Reserve Bank of Dallas, all supported holding rates steady but opposed the inclusion of language in the statement that suggested an easing stance.

The relevant phrase refers to the third paragraph of the statement, which reads, "In considering the extent of any additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

The relevant phrase from the April FOMC statement

Typically, the Fed includes language in the post-FOMC statement that indicates the future direction of rate adjustments. The April statement, like the one in March, included the phrase 'the extent and timing of any additional adjustments.' Maintaining the phrase 'additional adjustments'—which first appeared when rate cuts were under consideration—continues to be read as a signal for possible rate cuts.

This means that President Collins also agrees with removing this language. However, President Collins does not have a vote on rate decisions at this year's FOMC. There are a total of 12 voting members on the FOMC: the seven members of the Fed Board of Governors and the President of the Federal Reserve Bank of New York are permanent voters, while the other four seats rotate annually among the presidents of the 11 regional Federal Reserve Banks.

President Collins' stance on the statement language reflects a shift within the Fed away from a policy bias toward rate cuts. Bloomberg noted that the appointment of Fed Chair Kevin Warsh would make it even more difficult to pursue rate cuts.

Rising Inflation Concerns... "Rates Likely to Stay on Hold Longer"

President Collins also pointed to inflation stemming from conflict in the Middle East. Concerns over price pressures have grown as the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose to 3.5% in March and gasoline prices surged to their highest levels since 2022.

Regarding the future path of interest rates, President Collins said she prefers to take an "agnostic" stance, adding, "It is likely that rates will remain on hold for a longer period, and any further easing will not come until much later."

She also stated, "I believe there are scenarios where it will become important to seriously consider a rate hike." However, she clarified that a rate hike scenario is not her baseline expectation.

President Collins said, "What I am focused on is the persistence of inflation," emphasizing that the global ripple effects of war could continue to disrupt supply chains, which, in turn, could cause price increases to spread from energy to food.

She continued, "Rates should remain at the current 'modestly restrictive' level," but also added, "If it appears that the inflation trajectory is moving significantly in the wrong direction, policymakers will need to reassess what the appropriate policy should be."

Meanwhile, President Collins said her modal scenario (the most likely scenario) is that inflation will accelerate to just above 3.5% over the next few months before easing back toward around 3% by the end of the year.

This content was produced with the assistance of AI translation services.