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Dow Jones NewsMay 23, 4:30 AM UTC
DJ Rate Cuts May Not Happen as Quickly -- or Even at All This Year, Fed's Collins Says -- Barrons.com
By Nicole Goodkind
Boston Federal Reserve President Susan Collins is growing less confident that interest-rate cuts will be appropriate this year, marking a shift from her stance at the central bank's March meeting.
In an interview with Barron's on Thursday, Collins, a voting member of the Federal Open Market Committee this year, said her latest outlook includes higher inflation and slower growth, due in part to tariffs.
As recently as March, the Fed indicated there would be two interest-rate cuts this year. It also lowered its forecast for real gross domestic product growth to 1.7% in 2025 and predicted inflation would be running at 2.7% at year-end, up from its previous projection of 2.5%.
The economic landscape has become more uncertain, and her confidence in the projections she will submit at the June 17-18 policy meeting has declined, she said.
She told Barron's that she sees no cuts in 2025 as a possibility. She said that maintaining a "moderately restrictive" stance may be warranted for longer than previously expected, especially if inflation pressures persist and the labor market remains strong.
Her comments echo other Fed officials as they assess how tariffs and regulatory shifts will affect the economy. Collins told Barron's that business leaders have become increasingly cautious, particularly at small firms that are struggling to navigate rising costs and policy uncertainty.
The message from Collins is clear. The path to rate cuts is now less certain, and the Fed may need to hold steady for longer than markets hope.
The following interview has been edited for length and clarity.
As you begin to think about the Summary of Economic Projections (SEP), how have your recent conversations with stakeholders and new data informed your expectations for inflation, growth, and unemployment?
My current outlook, compared to the March SEP, does have higher inflation and somewhat slower growth, related to the higher tariffs. The hard data that we're seeing is giving limited impact of tariffs so far, but we're seeing some signals and certainly the conversations that I'm having with different stakeholders across a range of sectors, points to an expectation of needing to pass through some of the increases in cost to consumers.
So compared to March, I am expecting somewhat higher inflation this year with slower growth. My modal outlook, I'll call it as opposed to a baseline, does not have a significant downturn. But at the same time, I would say that there are scenarios where higher inflation could be more persistent and could last for longer, and that's a concern especially if it were to cause more increase in medium- to longer-term inflation expectations. That's something I would take very seriously and be quite concerned about.
And then there's scenarios in which the drag from tariffs and uncertainty has a bigger impact on the real economy as well. If you see both inflation increase and growth slow down, that is a particularly challenging environment for making monetary policy.
Is there a danger in assuming that policymakers can predict the impact tariffs have on inflation?
Assuming that there is a clear path is certainly not how I'm thinking about things. I would say that I have less confidence around the SEP scenario that I will be putting forward at the next meeting.
How does that guide your policymaking at the Fed's June meeting and beyond?
I don't know where tariffs are going to land. We got a little bit of information about some of the fiscal policy changes, but that's still evolving. And there are changes on the immigration side, there are changes on the regulation side and geopolitical challenges. So the range of uncertainty remains very high. From my perspective, an active patience posture for monetary policy is very appropriate right now, and we may be in that posture for longer than I had expected back in March.
What I mean by patience is waiting for the data to become more clear. I think we have the space to do that, the economy continues to be solid and resilient based on the range of data that I'm looking at and in terms of labor market conditions. Underlying inflation seems to be quite promising. But again, I don't think that the tariff impacts have come in yet.
When you say it's possible that we adjust policy later this year, does that mean it's possible that there are no cuts this year?
I would say so. There are certainly scenarios in which it will be appropriate for us to normalize policy later this year. Again, my modal outlook does have us maintaining that active patience for a bit longer than I might have thought back in March. But there are scenarios in which we will need to continue holding for longer, especially if labor market conditions remain relatively solid and we're seeing higher inflation.
With the House Republicans passing their budget bill, which includes significant tax cuts and spending changes, what are your initial thoughts on its monetary implications?
I certainly am not going to make comments on the policy itself. But of course, we do factor in implications of policies and what their impact would be on the evolution of the economy.
We'll have to see how the bill structure evolves. There are things that are still being factored in and priced out in terms of impacts for financial markets, and whether that could imply somewhat tighter conditions and higher interest rates.
The downgrade of credit rating and the fiscal picture certainly is one of the things that we would take a look at as part of our overall understanding of conditions that firms and households are operating in. We would also want to take a look at how the net effects of changes in taxes and spending would either have an overall boost or drag to economic activity. I think it's possible that the impact could come later, and we could see the effects of tariffs sooner.
Your recent travels provided on-the-ground insights. Could you share some of the most striking observations?
I just got back from New Hampshire and Vermont earlier this week. New England is aging faster than the rest of the country, and I hear a lot about challenges with labor supply. It's gotten easier to hire and turnover is certainly down from what I was hearing a year or more ago, but I heard a lot about hiring challenges in a number of different areas and sectors. And I heard about ways that firms are addressing that, which relates to innovation and increasing productivity -- and some of that speaks to opportunity as well.
But more recently, uncertainty has been the watch word. I heard in New Hampshire and Vermont, still a kind of cautious optimism, but a very wait-and-see approach, especially from the medium and larger size businesses.
There's concern in some places about the impact that tariffs will have and that creates an environment where it's hard to make investments, hard to move forward with developing plans and figuring out what directions to go in. There's a real wait-and-see kind of hunkering down, and real concern.
How concerned are you about the health of small businesses in the U. S.?
I'm quite concerned. Even the lower tariffs are still high compared to what we had before. It requires upfront expenditures for those firms that are importing. And having the financial liquidity and resources to be able to make those unexpected payments up front is much more challenging for small businesses than it would be for medium- and larger-sized ones. I think there are good reasons to be concerned. I think in this environment, given the important and often underappreciated role that small businesses play in our economy, the tariffs and the uncertainty, the ability to pivot is much more complicated and difficult for many small businesses. And that's something that I think is going to be important for us to pay close attention to.
Write to Nicole Goodkind at nicole.goodkind@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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May 23, 2025 00:30 ET (04:30 GMT)
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