(Jan 10): Several Federal Reserve officials confirmed Thursday the US central bank will likely hold interest rates at current levels for an extended period, only cutting again when inflation meaningfully cools. 

Boston Fed President Susan Collins said Thursday a slower approach to adjusting interest rates is merited now as officials confront “considerable uncertainty” over the US economic outlook. The view was echoed by colleagues from other reserve banks and by Governor Michelle Bowman. 

The Fed’s “policy is well positioned to adjust as required to evolving conditions – holding at the current level for longer if there is little further progress on inflation,” Collins said at an event in Boston.

The Fed’s favored inflation gauge rose 2.4% in the year through November, and 2.8% minus food and energy, each above the central bank’s 2% target.

She added that the economy was in a “good place,” but noted that progress on cooling inflation will likely be slower this year than previously anticipated. The specter of new economic policies under the incoming Trump administration and a Republican-controlled Congress may also change the economy’s trajectory, though it’s still too early to estimate exactly how that will play out, she said.

Bowman noted that lingering inflation risks justified a slower pace of rate cuts. “I continue to prefer a cautious and gradual approach to adjusting policy,” she said.  

Bowman said she voted to lower rates last month, but added that she could have supported holding borrowing costs steady.

Kansas City Fed President Jeff Schmid said interest rates may already be close to a level that neither stimulates nor slows the economy. Schmid, like Collins, votes on policy this year,

Speaking Wednesday in an interview with Bloomberg News, Collins said she favored fewer rate cuts this year than she had anticipated just a few months ago. She said her outlook for interest rates was consistent with the median projection officials released after the Fed’s December meeting, which pointed to two quarter-point reductions this year. 

Also speaking Thursday, Philadelphia Fed President Patrick Harker said he’s prepared to support additional rate cuts in 2025, but the timing would depend on what happens in the economy.

“I still see us on a downward policy rate path. Looking at everything before me now, I am not about to walk off this path or turn around,” Harker said. “But the exact speed I continue to go along this path will be fully dependent upon the incoming data.”

Policymakers cut interest rates for a third consecutive time at their December gathering, lowering their benchmark by a quarter percentage point and bringing the total amount of reductions last year to a full percentage point. Many Fed officials have said it’s now appropriate to slow down the pace of rate cuts as inflation remains above their 2% target and the labor market healthy.

Investors widely expect policymakers to hold rates steady when they gather in Washington Jan 28-29, according to pricing in futures contracts. 

Collins said Thursday her support for the December move was a “close call.” 

“On balance, the December cut provided some additional insurance to preserve healthy labor market conditions while maintaining a restrictive policy stance that is still needed to sustainably restore price stability,” Collins said.