Bloomberg Audio Studios, podcasts, radio news joining us now Boston FRED President Susan Collins, who has been in this meeting and coming here for what twenty years? Twenty some odd years. Absolutely, this one feels different, doesn't it.
Well, there's a lot going on with this meeting, I will say, and delighted to be here with you. The framework review, which we will hear more about. Very complicated context obviously, and I love to tell you a little bit about how I'm seeing economic conditions in the outlook.
So let's get into that. There is this dual mandate that's in question, the idea of inflation versus labor. Where are you in the continuum of which you need to be most worried about?
Well, you need to be.
This is a time when you need to be looking at the balance. You need to be looking at all of it. And growth has been slowing recently, but at the same time, overall economic fundamentals are relatively solid, and that's a context in which it's not surprising to see the indicators being mixed. Some are stronger and some are a bit weaker. You got to look at the whole picture and not focus too much on any one or two specific indicators.
There's a lot of people who are concerned that you might be late getting to the economy if you wait for unemployment to rise significantly. On the other hand, you might see inflation rise fast. What about the compromise that's been floated by some people that you cut rate once and then you wait.
Well, so you do have to be thinking about all of it. We cannot wait until all of the uncertainty is behind us. You've got to make decisions in real time. So I think that part is true. It is a complex context for monetary policy because I see upside risks to inflation related to tariffs already starting to see some of that, and downside risks on the labor market side. And so it's about balancing those features. And I don't get ahead of a decision that we're going to make
four weeks from now. We're going to see data in between and then, but it's going to be about balancing those to really offset our risks and focus on both sides of that mandate.
Well, I know data is important, but it's also backward looking. So what are companies in your district telling you about their plans for both employment and prices?
Yeah, absolutely, because I do think that complementing all of the statistical analysis that we are always you know, I'm a total dated geek, right, you got to be in this role with what we're hearing is really important, and what I'm hearing is pretty consistent with what I'm seeing in the data actually, and so on the labor market side, while the job growth has certainly slowed, it's somewhat more concentrated.
At the same time, a number of those indicators are quite healthy, and so on that side of it, they're you know, I think that their arguments for taking a bit more time, but I'm very focused on how those upside those downside risks are evolving. And then on the inflation side, what I'm hearing is that early days in terms of the impact of tariffs coming through into prices
over time for a number of different reasons. So what I'm hearing from firms around my district, which is most of New England, and what we're seeing in the data as we do that analysis at the Boston FED are pretty much telling a similar story.
From that context, I was looking at where inflation was the last time that we were here and heard at Jackson Hole speech versus now, and it's crept higher. It's gone on in the wrong direction. When you look at CPI, it's basically ground around the same place in core PCEE. Why did there seem to be confidence before that inflation was on a sustainable pack down to two percent?
Why is it no longer well that underlying inflation. I was quite confident a year ago that that trajectory was back down to restoring price stability. And in terms of what I hear around the district, high price level and concern about inflation is one of the number one things that I hear about, which is one of the reasons I'm so focused on the importance of that side of
the mandate as well as maximum employment. But you know, the tariff impacts are significant, and we have done analysis in the Boston FED understanding that it's not just direct imports, but the range of goods and services that rely on imported intermediate goods as well, a much broader range. It would surprise many people how many kinds of services actually use imported intermediate It's as part of what's happening there, and so we are anticipating that over the next couple
of quarters. So the rest of this year into early next year, inflation is going to remain elevated, and then my baseline would be it would start to come back down, but I don't rule out a larger and more persistent impact.
To Myke's earlier point, what is the harm in cutting by twenty five basis points or even fifty basis points, because with that really cause runaway inflation at a time when I know that the Chair has talked about policy being relatively restrictive.
Well, it's about the balance, right, I mean inflation side, And again that is what I hear about in every conversation I have across the first district, which is most of New England, and so it's about balancing that commitment to restoring price stability with an understanding that preserving healthy
labor markets also really matters for the public. And so doing that balance, I would say it's not a done deal in terms of what we do at the next meeting, but a range of possibilities is on the table, and we're going to get more data between now and then.
Definitely, and everybody out there listening, that's good advice. Wait, don't bet yet. Is it more likely that we see a rapid rise in unemployment because that tends to be what happens when it starts to go up, or a more long term but steady rise in inflation that would lead to inflation expectations becoming unnerved.
Well, so from my perspective, the risks on the two sides have come into rough balance, and so that's a really complex context for monetary policy when you could see the unemployment rate rising and you could see higher inflation. You know, my baseline is not one that is as concerned about inflation expectations rising at the moment. Earlier in the year, I had more concerns about that. I would say that at the moment monetary policy is kind of
modestly restricted. That's actually appropriate for a period when inflation is elevated. We haven't brought back price stability, at which I am more than I'm totally committed to. But at the same time, there are those risks with the slower employment growth that could lead unemployment rates to rise, and balancing those risks. So I think at the moment where
we are is appropriate. But if we start to see worsening labor market risks relative to inflation and starting to dial back the restrictedness would become appropriate.
Doctor Collins, I was going to ask you a bow tie question about the privilege of taking your PhD under Rudy Darnbush and what it means for the future of the dollar in that Unfortunately the economist Donald Trump is watching. Thank you President Trump for watching this morning. May I quote the United States is the quote hottest unquote country anywhere in the world. There is no other country that is even close. And just think one year ago we were a quote all caps dead country with no hope
of ever seeing all caps greatness again. But that all changed on election day November fifth, twenty twenty four. Many, including Ken Rogoff of your Harvard line up and say markets all time high, economy okay, inflation edging up, bond market speaking. Is the Fed to ex post right now? Does the Fed just have to wait because so many things are firing on all cylinders? Is a president just noted?
Well? You know, I am laser focused on the day data and the range of data from what's happening in the relative short term to what the indicators is just testing in terms of longer term trajectories. I think, as I said earlier, those underlying fundamentals are still.
Quite how broken the disinflation vector. Here do we sit at this Jackson hole where we got a service vector in a goods vector nudging upwards.
I think my baseline is again it's going to remain elevated for some time related to those tariffs which are still unfolding. It's a lot of uncertainty with that, but it's possible that we'll see more persistence. There are a lot of unusual dimensions of behavior right now, which means that some of the history doesn't give us as much of an indicator of how things are going to unfold.
We got to realize that. But again, we can't wait until all of that uncertainty's result before we make our decisions. Those fundamentals are still healthy, and keeping that balance in mind of the mandate that Congress gave us for price stability and maximum employment is where I will keep my focus.
We just have about thirty seconds. What's fed Chirp Howell going to say, no, one's listening.
Well, I don't want to get a head out of the chair. He's going to talk about Obviously, the framework. We have had a robust process there which I'm you know, feel really good about and about what he's seeing in conditions and the outlook that was really good, really good massaging.
Boston Fed President College, Thanks understanding