Susan M. Collins, Speech: Remarks on the Outlook, Monetary Policy, and Supporting a Vibrant Economy
Q&A Segment
Inflation
“So let me start by just very quickly saying what is in the SEP, the Summary of Economic Projections, it just came out last week and the median does give a sense of what the overall committee thinks, and in my view is quite similar to my outlook. And that has the inflation coming down by the end of the year to something in the range of 3.6%, perhaps by the end of 2024 by two and a half, 2.6%, somewhere in there and then close to the 2% target by 2025.”
Inflation Expectations
“If inflation expectations do become unanchored, that certainly makes it more difficult because it influences wage decisions and all kinds of other things.”
Jobs
‘And then I’ll just end by noting the labor market. I think many of us had expected that labor markets would be a bit less hot, that they would’ve cooled a bit at this point, and we’re still seeing quite a bit of strength and those wage pressures are key to an important part of the persistent inflation.”
“And I do think that without some increase in unemployment, it’s going to be very difficult to bring wage inflation down in a way that’s consistent with restoring price stability.”
Fed Funds
“I was planning to increase my submission to the SEP in terms of how much we would need to increase the federal funds rate to be sufficiently tight. And the context in the banking system has offset some of that. And so the SEP submission, my own view of what is an appropriate balance is very similar to where I was in December, despite that somewhat disappointing news in terms of inflation specifically.”
“But I do think that unless we hold rates at a sufficiently tight level for some time, which I believe is likely to be through the end of 2023 before we start to bring them down, I think that that’s what we’re going to need to do in order to be successful with the fight against inflation.”
Recession
“It’s also why I mention whenever I speak about this that I really do see a pathway for bringing inflation down that doesn’t require a substantial downturn, some increase in unemployment, which is at historically low levels right now, I do think is going to be part of the path, but I don’t think we need a significant downturn.”
Speech Segment
Fed Funds
“Since March, the FOMC raised rates from near zero to the range of 4.75 to 5 percent. After initial, expeditious moves, recent increments have been small and deliberate – which in my view is appropriate as we approach a level that is sufficiently restrictive.”
“As I noted earlier, recent financial sector stress has added to this challenge by increasing the uncertainty around appropriate monetary policy. While the banking system remains strong and resilient, recent developments will likely lead banks to take a somewhat more conservative outlook and tighten lending standards, thus contributing to slowing the economy and reducing inflationary pressures. These developments may partially offset the need for additional rate increases.”
“While recognizing the heightened uncertainty, I believe staying the course with a one-quarter-percent increase in the policy rate at last week’s FOMC meeting was appropriate. Similarly, given current information, I see the median federal funds rate path for 2023 in last week’s Summary of Economic Projections from Fed policymakers (the SEP) as reasonably balancing the risk of monetary policy not being restrictive enough to bring inflation down, and the risk that activity slows by more than needed to address elevated price pressures.”
“Similar to the SEP median, I currently anticipate some modest additional policy tightening, and then holding through the end of this year. Of course, I’ll be carefully watching a range of indicators including data on inflation, spending, labor markets, and financial conditions.”
Jobs
“Sustained household and business spending, and limited pickup in labor supply, help explain why the labor market remains robust. But there are some emerging signs of slowing labor demand. In particular, a large portion of the recent strength in payrolls comes from sectors that were hit especially hard early in the pandemic – such as leisure and accommodation, and health care – and faced significant hiring challenges in the recovery. As this “catching up” process ends, I expect more moderation in hiring, which should help to relieve wage pressures.”