Susan M. Collins, Speech/Interview: Perspectives on the Economy and Monetary Policy

Overview: “With rates now in restrictive territory, I believe it is time to shift focus from how rapidly to raise rates, or the pace, to how high – in other words, to determining what is sufficiently restrictive. And down the road, when we get there, in my view we’ll need to shift again to focus on how long to hold rates at that level.”

Rate Hikes: In thinking about how to reach the level of the funds rate at which the Committee will deem appropriate to hold policy, I believe it is important for us to consider the various options for policy moves. This will include 75 basis points, as well as smaller increments. I note that a 50 basis-point move was considered a large move in the past.

In my view, smaller increments will often be appropriate as we work to determine how much tightening is needed to reach a level of the funds rate that is sufficiently restrictive. A focus on the level (not the pace) is what “resolve” looks like in this second policy phase.

Risk of Overtightening: Importantly, as policy tightens further, the risks of overtightening increase. As I’ve discussed, I do not believe a significant slowdown is required to accomplish our goal of restoring price stability. Therefore, it will increasingly be important to balance the risk of possibly slowing demand in the economy too much, with the risk of allowing inflation to persist too long and possibly de-anchoring inflation expectations.

Terminal Rate: “It is premature to signal how high rates should go. However, I will say that the median path in September’s Summary of Economic Projections can be taken as a starting point of my current thinking, with the possibility of a higher path depending on incoming information.”

Pace of Rate Hikes: “It makes a lot of sense to me to move rates a bit more slowly as the risks that we’re trying to balance become closer … And it’s absolutely true that we can’t say exactly what the lags will be and when we should start to see what effects. The current context is very unusual, and a lot of it is really different from the historical episodes.”