Boston Federal Reserve Chairman: Current interest rates are still “moderately restrictive” and keeping interest rates unchanged for the time being is still an appropriate choice

The Zhitong Finance App learned that Boston Federal Reserve Chairman Collins said on Thursday that she still believes that the current US interest rate level has a certain limiting effect on the economy and is helping to curb inflation. Despite mixed results in the latest inflation data, she believes that there is still a basis for keeping interest rates unchanged at this stage. Whether to continue to support staying on hold in the future will depend on whether inflation can show more evidence that it continues to cool down.

Collins made this statement during an interview during the Kansas City Federal Reserve Annual Economic Conference held in Jackson Hole, Wyoming. She said that interest rates are currently still at a “moderately restrictive” level.

She believes that the current level of interest rates has had a clear impact on some sectors of the US economy, especially small businesses and the real estate market. This judgment is in contrast to the recent opinion of some Federal Reserve officials that monetary policy restrictions are insufficient.

However, with regard to the newly released inflation data, Collins's assessment is relatively cautious. She said that the overall inflation data may be slightly higher than her own expectations, but after further analysis of the composition of the data, its performance is basically in line with previous judgments.

According to data released by the US Bureau of Economic Analysis on Wednesday, the personal consumption expenditure (PCE) price index, the inflation index favored by the Federal Reserve, rose 3.7% year on year in July, and the core PCE after excluding food and energy prices rose 3.3% year on year. Both indicators continue to be significantly above the Federal Reserve's long-term inflation target of 2%.

The Federal Reserve decided to keep interest rates unchanged at the July policy meeting, but internal policy differences have clearly widened. At that time, a total of three officials voted against it, advocating a 25 basis point hike.

Collins was not a voting member of the Federal Open Market Committee (FOMC) this year, but she said she supports the July decision to keep interest rates unchanged. However, she stressed that whether this policy position can continue to be supported in the future will depend on whether there is more evidence that inflation continues to decline.

Before the next monetary policy meeting is held from September 15 to 16, the Federal Reserve will also receive the August employment and inflation report. These data may become an important basis for deciding the next policy direction.

At the same time, Collins warned that new supply shocks in the future may change the outlook for inflation. She said that the Federal Reserve needs to focus on whether inflation shows greater sustainability and whether new supply-side pressures are emerging. If the US imposes further tariffs, or if the situation in the Middle East continues to deteriorate, it could force her to reassess her inflation prospects.

This means that although Collins currently believes that keeping interest rates unchanged is still appropriate, if external shocks push up price pressure again, her policy stance may change accordingly.

Furthermore, the US Bureau of Economic Analysis plans to adjust price statistics methods for some categories of goods and services starting next month. She believes this will be a “valuable change,” and the timing of the adjustments is not unusual.

The market's attention is currently focused on Federal Reserve Chairman Walsh. Walsh will deliver a keynote address in Jackson Hole on Friday, which is one of the hottest events in global financial markets this week.

Since Walsh has not previously detailed his full views on the future of the US economy and monetary policy, some investors and economists are concerned that uncertainty about the Fed's policy communication has increased, which has sparked discussions about the central bank's credibility.

In response, Collins said that she still believes that the Federal Reserve's credibility remains strong. She pointed out that one of the important indicators for measuring the central bank's credibility, long-term inflation expectations are still basically in line with the Federal Reserve's 2% inflation target, which does not indicate that the public has lost confidence in the Fed's ability to maintain price stability.