At Worcester research bureau annual meeting, Fed president predicts return to 2% inflation target
Photo I Mica Kanner-Mascolo
Susan Collins, president and CEO of the Federal Reserve Bank of Boston speaks at the Worcester Regional Research Bureau’s annual meeting on Wednesday.
The U.S. economy is in a good place overall, Susan Collins, president and CEO of the Federal Reserve Bank of Boston said at the Worcester Regional Research Bureau’s annual meeting on Wednesday.
Furthermore, Collins is confident inflation will return to the Federal Open Market Committee’s 2% target in a timely fashion and amidst a healthy labor market.
“Preserving the current favorable economic conditions will require additional adjustment to the stance of monetary policy so as not to put unnecessary restraint on demand, and a careful data based approach to normalizing policy will be appropriate as we balance the risks which are two-sided,” she said.
These two-sided risks are employment and inflation, she said.
After unemployment skyrocketed during the pandemic, the U.S.’s rebound has represented a highly unusual economic cycle.
“Instead of what is typically a gradual decline in unemployment after it spikes in a recession, unemployment fell very quickly after spiking this time around,” she said.
Unemployment spiked to levels rivaling the Great Depressions in the first couple months of the pandemic, but they quickly dropped back near historic lows of 3%-4% nationally. Since the Federal Reserve began raising interest rates in 2022, unemployment has been slowing ticking upward, although levels remain low.
In August 2024, the national unemployment rate sat at 4.6%, according to the Massachusetts Executive Office of Labor and Workforce Development, using data from the U.S. Bureau of Labor Statistics. For Central Massachusetts metro areas, unemployment rose to its highest level in a year in July to 4.6% and decreased by 0.1 percentage points in August.
The U.S. saw a decrease in inflation at the end of 2023, largely due to the rapid deceleration in core goods prices, said Collins. That progress backtracked in early 2024 as the U.S. saw a rise in inflation.
“The good news is that the disinflation process has resumed, and I see that as driven by economic developments that are broader and also more solidly in place than they were at the end of last year,” said Collins.
Core good prices have moderated and are in congruence with pre-pandemic trends and services inflation is trending downward, though still elevated.
Though this positive outlook does not similarly apply to housing inflation, which still remains above the nation’s average during the pandemic. This is partially due to current rents that are catching up to new market rents, said Collins, though prices for newly signed rental leases have been at or below the pre-pandemic range for several months now.
“The data actually don't suggest the emergence of new inflationary pressures, but it's difficult to predict just how long this rent catch up process may take, and that accounts for quite a bit of the most of the stickiness that we are seeing in inflation, the moderation in new rent growth also reflects a labor market that's normalizing and reducing price pressures in the services sector,” said Collins.
Mica Kanner-Mascolo is a staff writer at Worcester Business Journal, who primarily covers the healthcare and diversity, equity, and inclusion industries.
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