President of the Boston Fed: The current interest rates remain "moderately restrictive", keeping rates unchanged is still an appropriate choice

According to Zhihui Finance APP, Boston Fed President Collins said on Thursday that she still believes the current level of US interest rates remains somewhat restrictive for the economy and is helping to contain inflation. Despite the latest mixed inflation data, she believes there is still justification for keeping rates unchanged at this stage, and whether she will continue to support holding steady in the future will depend on seeing more consistent evidence of inflation cooling.

Collins made the above remarks during an interview at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming. She stated that interest rates are currently at a “moderately restrictive” level.

She believes the current interest rate level has already had a clear impact on certain sectors of the US economy, especially small businesses and the real estate market. This judgment stands in contrast to some recent Fed officials who have expressed concern that monetary policy is not restrictive enough.

However, Collins was relatively cautious in her evaluation of the latest inflation data. She noted that overall inflation may be slightly higher than she expected, but after further analyzing the data composition, the results were largely in line with her previous judgment.

Data released Wednesday by the US Bureau of Economic Analysis showed that the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, rose 3.7% year-on-year in July, while the core PCE, which excludes food and energy, increased 3.3% year-on-year. Both indicators remain clearly above the Fed's long-term 2% inflation target.

At its July policy meeting, the Fed decided to keep interest rates unchanged, but internal policy divisions have become more apparent as three officials cast dissenting votes, advocating a 25 basis point hike.

This year, Collins is not a voting member of the Federal Open Market Committee (FOMC), but she said she supported the decision to hold rates steady in July. However, she emphasized that whether she can continue to support this policy stance will depend on the emergence of more evidence that inflation is consistently declining.

Before the next monetary policy meeting on September 15-16, the Fed will also receive employment and inflation reports for August, which may become an important basis for determining the direction of future policy.

Collins also warned that new supply-side shocks could alter the inflation outlook. She said the Fed will need to focus on whether inflation displays greater persistence and if new supply-side pressures arise. If the US further increases tariffs or the Middle East situation worsens, it could force her to reassess the inflation outlook.

This means that while Collins currently feels it is appropriate to keep rates unchanged, her policy stance could change if external shocks reignite price pressures.

In addition, the US Bureau of Economic Analysis plans to adjust the statistical methods for certain goods and services categories’ prices starting next month. She considers this a “valuable change” and says the timing of the adjustment is not unusual.

For now, the market's focus has shifted to Fed Chair Walsh. Walsh will deliver a keynote speech at Jackson Hole on Friday, which is one of the most closely watched events in global financial markets this week.

Since Walsh has not yet provided a comprehensive view of his outlook on the US economy and monetary policy, some investors and economists are concerned that uncertainty over Fed policy communication has increased, sparking discussions about central bank credibility.

On this topic, Collins said she still believes the Fed’s credibility remains strong. She pointed out that a key indicator of central bank credibility, long-term inflation expectations, remains basically in line with the Fed’s 2% inflation target, and there has been no loss of public confidence in the Fed’s ability to maintain price stability.