Getting to 2% inflation will be 'bumpy' but Fed cuts still likely 'later this year': Collins

Boston Fed president Susan Collins predicted Wednesday that the path down to the central bank’s 2% inflation goal could continue to be "bumpy," but that it will still likely become appropriate to begin cutting rates "later this year."

Collins becomes the latest of several Fed officials to use the word "bumpy" to describe the inflation picture following some hotter-than-expected readings in recent weeks.

New data due out Thursday morning will determine whether that picture is about to get bumpier.

Economists expect the Fed's preferred inflation measure — the "core" Personal Consumption Expenditures (PCE) Index that excludes volatile food and energy prices — to land on the hotter side month over month. That could stoke fears that inflation is not moving down quickly enough.

"While total inflation has come down significantly from its recent peak, it remains elevated, and progress returning it sustainably to our 2% target will likely continue to be bumpy," Collins said Wednesday in a speech at the Tuck School of Business at Dartmouth.

"I believe it will likely become appropriate to begin easing policy later this year," she continued, using the same time frame she outlined in a speech earlier this month.

Some of her colleagues have also used that same "later this year" language, including Cleveland Fed president Loretta Mester.

Investors are beginning to adjust their expectations of when the Fed could cut in 2024. They now expect it to happen in June, after starting the year thinking it would start in March. They also now expect a total of three cuts, in line with the median estimates offered by Fed officials last December.

Collins in her speech Wednesday warned that it’s important not to overreact to individual data readings, pointing to both a hotter-than-expected reading from January's Consumer Price Index (CPI) and a January jobs report that showed more hiring than expected.

"So, more time is needed to have greater confidence about the outlook," Collins said.

Specifically, Collins is looking for more declines in prices for housing and non-shelter services to gain greater confidence in the overall inflation outlook.

She said she also wants to see continued evidence that wage growth is not adding inflationary pressures. While she said she thinks the risk of inflation getting stuck above the Fed’s 2% target has receded, she also stated that demand needs to grow more slowly to achieve 2% inflation.

"It is essential not to ease policy too soon, to ensure price stability is restored," she said. "At the same time, waiting too long would run the risk of an excessive slowdown."

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