Home » Boston Fed chief aims for ‘modest slowdown’

Boston Fed chief aims for ‘modest slowdown’

by archyde

The new president of the Boston Federal Reserve Bank on Monday highlighted the need for a higher unemployment rate to bring inflation down from unusually high levels, but also suggested any economic downturn was likely to be modest.

In her first speech as Boston Fed president, Susan Collins said the economy is resilient enough to withstand the higher interest rates needed to combat inflation, which is near its highest level in four decades. Her comments parallel those made on Sunday by Raphael Bostic, president of the Atlanta Federal Reserve Bank. Fed Chairman Jerome Powell also indicated that fighting inflation will cause “pain” for households and businesses.

“Achieving price stability will require slower job growth and a somewhat higher unemployment rate,” Collins said in a speech to the Greater Boston Chamber of Commerce.

Collins acknowledged that the job losses are painful and stressed that “there is apprehension about the possibility of a significant recession.” However, he maintained that “the goal of a more modest, albeit challenging, slowdown is achievable.”

His remarks added to an ongoing debate about how the Federal Reserve’s continued interest rate hikes, the fastest in more than 40 years, will hurt the economy. By raising its benchmark rate, the Fed makes a wide variety of consumer and business loans more expensive, including mortgages, auto loans and credit cards.

Fed officials hope those hikes will achieve a “soft landing” by slowing consumer and business spending enough to reduce inflation but not enough to cause a recession.

However, many economists doubt that this result will be achieved. The Federal Reserve raised its key rate to a range of 3% to 3.25%, the highest in 14 years, but job growth remains strong and consumers continue to spend at a decent pace. That suggests the Fed may need to raise rates more than expected in order to slow consumer demand and inflation.

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