Boston Fed Chairman: Current interest rates remain "moderately restrictive," and maintaining the rates as they are is still the appropriate choice.

Boston Federal Reserve President Collins stated on Thursday that she still believes the current level of U.S. interest rates has a certain restrictive effect on the economy and is helping to curb inflation. Despite mixed signals from the latest inflation data, she finds it justified to maintain rates at their current levels for now, and whether she continues to support this stance in the future will depend on whether there is more evidence of a sustained cooling in inflation. Collins made these comments during an interview at the Kansas City Fed's annual economic symposium held in Jackson Hole, Wyoming. She noted that interest rates are currently at a "moderately restrictive" level. She believes that the current interest rate levels have already had a significant impact on certain sectors of the U.S. economy, particularly small businesses and the real estate market. This assessment contrasts with some recent views from Fed officials who have argued that the degree of monetary policy restriction is insufficient. However, Collins expressed a cautious view on the recently released inflation data. She stated that while the overall inflation figures may be slightly higher than her expectations, a deeper analysis of the data components revealed that they are generally consistent with her earlier assessments. Data released by the Bureau of Economic Analysis on Wednesday showed that the Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, rose 3.7% year-over-year in July, while the core PCE, excluding food and energy prices, increased by 3.3% year-over-year. Both measures remain significantly above the Fed's long-term inflation target of 2%. At the July policy meeting, the Fed decided to keep interest rates unchanged, although internal policy divisions have become more pronounced, with three officials voting against the decision, advocating for a 25 basis-point rate hike. Collins is not a voting member of the Federal Open Market Committee (FOMC) this year, but she expressed her support for the decision to maintain rates in July. Nonetheless, she emphasized that her ability to continue supporting this policy stance will depend on whether more evidence emerges indicating that inflation is persistently declining. Before the next monetary policy meeting scheduled for September 15-16, the Fed will also receive the August employment and inflation reports, which could become important indicators for deciding the next steps in policy direction. Collins simultaneously warned that future supply shocks could alter the inflation outlook. She noted that the Fed needs to closely monitor whether inflation shows signs of greater persistence and if new supply-side pressures emerge. If the U.S. were to impose further tariffs or if the situation in the Middle East continues to deteriorate, it could compel her to reassess the inflation outlook. This indicates that while Collins currently believes maintaining rates is still appropriate, her policy stance may also change if external shocks drive up price pressures again. Additionally, the Bureau of Economic Analysis plans to adjust the statistical methods for pricing certain goods and services starting next month. She believes that this will be a "valuable change," and the timing of the adjustment is not unusual. Market attention has now shifted to Federal Reserve Chair Waller, who will deliver a keynote speech on Friday in Jackson Hole, one of the most closely watched events in global financial markets this week. As Waller has not previously articulated his complete views on the U.S. economic and monetary policy outlook, some investors and economists are concerned that uncertainty regarding the Fed's policy communication has increased, sparking discussions about the central banks credibility. In response, Collins stated that she still believes that the Fed's credibility remains strong. She pointed out that one important indicator of central bank credibility, the long-term inflation expectations, is still largely in line with the Feds 2% inflation target and does not indicate a loss of public confidence in the Fed's ability to maintain price stability.