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Boston Federal Reserve President Susan Collins said the U.S. central bank might not be done raising interest rates and that they are likely to stay “higher, and for longer, than previous projections had suggested.”
While there are promising signs inflation continues to slow, Collins said Friday in a speech in Boston, “I continue to hear about the challenges households and firms face related to too-high inflation.”
At the same time, Collins said, the Fed needs to show patience before raising rates again so it can sift through the economic and separate “the signal from the noise.”
The Fed on Wednesday left its benchmark short-term interest rate unchanged at a range of 5.25% to 5.5%. It left open the door for another rate hike before year end if inflation doesn’t slow further toward the Fed’s 2% target.
The current rate of inflation is about twice as high.
The central bank also indicated it will keep interest rates high for quite some time to make sure it snuffs out inflation. Senior Fed officials predicted just two rate cuts next year instead of the four they penciled in in June.
Collins agreed with that approach.
“I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” she said. “Policymakers will stay the course to achieve the Fed’s mandate.”
One of Collins’ worries is the still-high level of core services inflation excluding housing. That measure is viewed as a proxy for labor costs and underlying inflationary pressures in the economy.
The measure “has yet to show the sustained improvement that would be consistent with price stability,” Collins said.