Key facts
- Boston Fed President Susan Collins described recent US inflation data as 'mixed.'
- Collins noted that headline inflation was too high but details showed promising signs.
- She indicated that monthly inflation for market-driven goods and services was near the Fed's 2% target.
- Collins projects gradual disinflation with the current policy rate considered slightly restrictive.
- Collins is prepared to raise interest rates if inflation does not decline as expected.
- The PCE Price Index increased at a 3.7% annual rate in July.
Boston Fed President Susan Collins described recent U.S. inflation data as 'mixed,' indicating that while headline inflation remains elevated, certain details suggest a more promising trend. She noted that monthly inflation for market-driven goods and services is approaching the Federal Reserve's 2% target.
Collins projects a gradual disinflationary path, viewing the current policy rate as slightly restrictive. However, she remains prepared to support further interest rate hikes if inflation does not decline as anticipated. The Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, stood at a 3.7% annual rate in July.
Federal Reserve Chairman Kevin Warsh is set to address the Jackson Hole economic symposium, where investors will be looking for clarity on his views regarding inflation, bond market volatility, and economic outlook risks. This speech is seen as a crucial test early in his tenure, with questions about whether he will offer a clearer roadmap for monetary policy or maintain a less-is-more communication approach.
Other Fed officials have expressed more direct concerns. Kansas City Fed President Jeffrey Schmid suggested the current policy rate is not sufficiently restrictive to curb inflation, stating, 'Now is the time to act.' Cleveland Fed President Beth Hammack echoed this sentiment. In contrast, Collins offered a more nuanced perspective.
Adam Posen, president of the Peterson Institute for International Economics, advised Warsh to emphasize his commitment to acting on inflation if necessary, without abandoning his belief in factors that could keep inflation low long-term. The symposium's official theme is financial innovation, but discussions are expected to center on Warsh and potential conflicts between monetary policy needs and U.S. debt management.
International central bankers are also closely watching, as the Fed's decisions impact global markets. IMF Financial Counsellor Tobias Adrian commented on the challenges of forward guidance in a volatile environment, stressing the need for clear communication on how economic data influences policy decisions to maintain credibility.