Boston Fed chief aims for ‘modest slowdown’

The new president of the Boston Federal Reserve Bank on Monday stressed the need for a higher unemployment rate to bring inflation down from unusually high levels, but also suggested that any economic downturn was likely to be modest.

In her first speech as Boston Fed president, Susan Collins said the economy is resilient enough to withstand the higher interest rates needed to combat inflation, which is near the highest level in four decades. His comments echo those made Sunday by Atlanta Federal Reserve Bank President Raphael Bostic. Fed Chairman Jerome Powell also indicated that tackling inflation would cause “pain” for households and businesses.

“Achieving price stability will require slower job growth and a somewhat higher unemployment rate,” Collins said in a speech to the Greater Boston Chamber of Commerce.

Collins acknowledged that the job losses are painful and stressed that “there is fear about the possibility of a significant recession.” However, he maintained that “the goal of a more modest slowdown, while challenging, is achievable.”

His comments added to an ongoing debate about how the Federal Reserve’s continued rate hikes, the fastest in more than 40 years, will hurt the economy. By raising its benchmark rate, the Fed makes a wide variety of consumer and business loans more expensive, including mortgages, auto loans and credit cards.

Fed officials hope that those hikes will achieve a “soft landing” by slowing consumer and business spending enough to reduce inflation, but not enough to cause a recession.

However, many economists doubt whether this result will be achieved. The Federal Reserve raised its key rate to a range of 3% to 3.25%, the highest in 14 years, but job growth remains strong and consumers continue to spend at a decent pace. This suggests that the Fed may need to raise rates more than expected to slow consumer demand and inflation.

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