Fed’s Collins Endorses Rate Reduction as Inflation Worries Ease

Federal Reserve Bank of Boston President Susan Collins supported the recent 25 basis points cut in the federal funds rate, lowering it to a range of 3.5% to 3.75%. She described the decision as a “close call,” primarily influenced by improving inflation forecasts that imply a lower risk of rising inflation. Collins, who had previously expressed concerns about persistent inflation, sided with the majority of policymakers, differing from two colleagues who favored maintaining rates and one who wanted a larger cut. She stressed the importance of cautious guidance and indicated that further clarity on inflation is necessary before advocating additional policy changes, reaffirming the Fed’s commitment to achieving a 2% inflation target.

Conversely, Federal Reserve Governor Stephen Miran dissented, arguing for a 0.5% reduction to better align with economic realities. He contended that current inflation statistics, showing a 2.8% annual increase, do not reflect current supply and demand dynamics, particularly citing issues with retrospective components like shelter inflation. Miran suggested that maintaining tight monetary policy could jeopardize jobs, as he believed underlying inflation would be closer to 2.3%.

New York Federal Reserve President John Williams also weighed in, asserting that the recent cut positions U.S. monetary policy favorably as 2026 approaches. He acknowledged a cooling labor market and decreasing inflation risks, projecting a drop to 2.5% inflation in 2026 and reaching the Fed’s target of 2% by 2027. Williams noted that tariff impacts on inflation appear limited to temporary price hikes rather than prolonged increases, anticipating U.S. economic growth of 2.25% and a gradual decrease in unemployment rates.

These differing views among Federal Reserve officials highlight the ongoing debate over the appropriate monetary policy in light of changing inflation and economic conditions.