By Michael S. Derby
NEW YORK (Reuters) - Federal Reserve Bank of Boston President Susan Collins on Thursday said the latest inflation data underscores uneven progress toward restoring price stability, in comments that reiterated her view that the central bank may have to raise rates again to get price pressures back to the 2% target.
“I believe we may be at, or very near, the peak for this cycle, although I would not take further tightening off the table yet,” Collins said in the text of a speech. She noted that her outlook jibes with the collective view of officials at the September Fed meeting that penciled in one more hike this year in what is now a federal funds rate target range of 5.25%-5.5%.
Collins, who does not have a vote on the rate-setting Federal Open Market Committee this year, joined with the views of other Fed officials who have argued recently that a jump in bond market yields could take pressure off the central bank to raise rates. Collins appeared to view higher borrowing costs as buying the Fed some space to take in incoming data.
If the rise in yields persists, “it likely reduces the need for further monetary policy tightening in the near term,” Collins said. “This reinforces my view that we are very near, and perhaps at, the peak federal funds rates for this tightening cycle.”
Collins spoke on the same day the government reported the consumer price index for September. It showed progress on underlying price pressures but the overall reading rose by 3.7% versus a year ago, the same gain as August.
“Today’s CPI release is a reminder that restoring price stability will take time,” and it remains a question whether inflation is moving sustainably on a path back to the target, the official said. Collins added that the core service prices stripped of housing factors have yet to make much progress toward lower levels.
The official reiterated in her remarks her view a soft landing for the economy remains possible, saying, “I am optimistic that price stability can be restored with an orderly slowdown in activity, and only a modest increase in the unemployment rate to cool the mismatch in labor demand and supply.”