The Federal Reserve’s goal, says Susan M. Collins, president and CEO of the Federal Reserve Bank of Boston, is an economy where no one is thinking about inflation. That’s not the case yet. “Everybody’s thinking about inflation,” Collins said Thursday at a meeting with 18 business and civic leaders convened in Springfield by the Economic Development Council of Western Massachusetts. Collins serves on the Federal Open Market Committee, the monetary policymaking body of the United States. Before taking her job a year ago, she was provost and executive vice president for academic affairs at the University of Michigan.
“That’s an important way of thinking about it conceptually,” Collins said in a follow-up interview with The Republican and MassLive, in which she expressed optimism that inflation can be tamed without causing a major slowdown in the economy. “If people are focused on inflation and they are doing things to avoid prices and not focused on productive activities and a range of other things, that’s really the issue,” she said. Rising prices not only strains the economy, but makes people’s lives harder. “We have seen a lot of inflation. Inflation remains too high,” she said. “One of the things I’ve heard on all of my visits is really the cost, the toll that inflation is taking. Especially for people with lower incomes. Also for firms, who sometimes are struggling to complete projects.”
In May, consumer prices were up 4% compared with 12 months earlier. Annual inflation was at its lowest level since 2021. Inflation has fallen for 11 months in a row. But it’s still not at the Fed’s target of 2%. Even though the Federal Reserve left interest rates alone at a meeting earlier this month, the central bank will likely raise them more during 2023 and keep them high for some time, in an effort to curtail demand and cool inflation. Collins said Federal Reserve chairman, Jerome Powell, echoed those sentiments in Congressional testimony Thursday.
“That’s a key kind of process for bringing inflation down,” Collins said. “It does take time. We are seeing some signs the policy is working. But there are other signs that are disappointing.” She bases her optimism that inflation can be brought down without causing a major economic slowdown on the fact that households and businesses have savings to cushion the blow. There is evidence lower-income Americans are starting to spend less due to higher interest rates. Collins said a tight labor market also gives her optimism. Employers are still hiring and many are telling the Fed they are reluctant to lay anyone go because staff are so difficult to hire. She said the roots of the current inflationary cycle are also unusual. One is the speed at which the economy revived from COVID-19 impacts. But there were logistics bottlenecks as the economy reopened. Inflation spiked last year in part due to Russia’s invasion of Ukraine.