Federal Reserve Bank of Boston President Susan Collins said that if the recent run-up in Treasury yields is sustained, it could lessen the need for further interest-rate increases from the central bank.
(Bloomberg) — Federal Reserve Bank of Boston President Susan Collins said that if the recent run-up in Treasury yields is sustained, it could lessen the need for further interest-rate increases from the central bank.
“The rise in long-term yields implies some tightening of financial conditions,” Collins said Thursday in remarks prepared for a community banking conference hosted by the Boston Fed. “If it persists, it likely reduces the need for further monetary-policy tightening in the near term.”
Fed officials left interest rates steady last month and agreed that policy should remain restrictive for some time. Policymakers noted that the risks of overtightening now had to be balanced against keeping inflation on a downward path toward 2%, according to minutes of the September meeting released Wednesday.
Several policymakers speaking over the past week have said that higher long-term yields may slow the economy, potentially taking the place of additional rate increases from the US central bank.
Inflation data released Thursday showed US consumer prices advanced at a brisk pace for a second month, suggesting the Fed will keep the door open to another interest-rate hike this year. The so-called core consumer price index, which excludes food and energy costs, increased 0.3% in September, according to the Bureau of Labor Statistics.
Collins, who does not vote in monetary policy decisions this year, said a key question for policymakers is whether the declines seen in inflation will continue. “Today’s CPI release is a reminder that restoring price stability will take time,” she said.
The Boston Fed president repeated comments she made on Wednesday about how the Fed can take a more patient approach to monetary policy now that rates are likely close to, and potentially at, the peak rate of the tightening cycle. She also reiterated that further rate increases are still possible.
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