Fed's Collins favors slow rate increases amid two-sided economic risks

what happened

Boston Fed President Susan Collins told reporters on Saturday that she backs a measured series of small rate increases, arguing that this approach handles economic uncertainty better than a faster pace. She described the risks to the real economy as two-sided: inflation remains high and is spreading across more sectors, while the labor market is steady and could strengthen. Collins also warned that the rise in medium- and longer-term yields since the start of the year could restrain demand more than she currently expects, and that risks of further economic shocks persist.

According to Reuters, the Fed last lifted rates in September, and under widespread expectations it is set to raise its 3.75%-4% target range by a quarter point at the December 8-9 meeting, with another move likely to follow into January. Collins said that recent price data and a firmer job market could mean the policy rate path ends up higher than she thought a couple of months ago.

why it matters

For markets, remarks from a Fed official who leaves room for further tightening into January reinforce expectations of higher short-term rates. That supports the dollar and weighs on government bond prices, while the focus on inflation raises the importance of upcoming price and employment data.

market impact

US dollar and Treasuries: expected higher rate path supports the dollar and pressures bond prices

• ▲US dollar pressure up — a higher expected policy rate path draws capital into dollar-denominated assets
• ▼US Treasuries pressure down — rising medium- and longer-term yields push down the prices of these bonds

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