• Boston Fed President Susan Collins states inflation remains elevated, requiring continued restrictive policy
  • Fed officials are divided on a potential December rate cut, with market odds at roughly 50-50
  • Economic data gaps from the recent government shutdown complicate the policy outlook

Federal Reserve Bank of Boston President Susan Collins emphasized that inflation remains elevated despite moderate economic growth and a slowing labor market, signaling the central bank should maintain its cautious approach to further interest rate cuts.

Collins, speaking to business leaders in Boston on Thursday, noted that maintaining the current federal funds rate around 3.9% could help bring inflation down sustainably. "The broader economy is holding up well even with higher rates," she said, according to people familiar with her remarks. "What we're seeing is persistent price pressures that require continued vigilance."

The comments come as Federal Reserve officials appear increasingly divided over whether to proceed with a rate cut at their December meeting. The Fed's most recent action included a quarter-point rate cut at the end of October, with Chair Jerome Powell clarifying that any further cuts are not guaranteed and depend entirely on incoming data.

Efforts to guide monetary policy have hit a snag due to significant gaps in economic data caused by the recent government shutdown, making it harder for policymakers to get a clear read on inflation and employment trends. Several regional Fed presidents have joined Collins in expressing caution about cutting rates too soon, creating tension within the central bank's leadership.

Inflation in the US has stayed above the Fed's 2% target for several years, contributing to continued high borrowing costs for mortgages and auto loans. The job market has shown signs of slowing with slight increases in unemployment, though conditions remain historically tight.

When reached for comment, a spokesperson for the Boston Fed declined to elaborate beyond Collins' public remarks. The market currently sees about a 50-50 chance of a December rate cut, pending new data on jobs and inflation in October and November.

Without clearer signs of inflation moderating, the Fed would be forced to maintain its current restrictive stance, potentially risking further labor market softening. The wide range of views within the Fed suggests a cautious, data-driven approach will prevail through year-end.

Correction: An earlier version of this article misstated the timing of the Fed's last rate cut. It occurred in October, not September.