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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Susan Collins is the

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Speaker 1: President of the Federal Reserve Bank of Boston, and she

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Speaker 1: joins us now on Bloomberg Radio and television around the world.

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Speaker 1: Thank you very much for getting up in this lovely

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Speaker 1: rainy day here in New York.

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Speaker 2: Industry, so delighted to be here.

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Speaker 1: Let's start with the elephant in the room. CPI came

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Speaker 1: in hotter than expected this past month, and now you

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Speaker 1: have yourself and others suggesting we're not in any hurry

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Speaker 1: to cut interest rates. Markets seemed to be taking this

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Speaker 1: as a policy turning point. Is it?

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Speaker 2: I wouldn't characterize it as a turning point. So let

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Speaker 2: me absolutely right to that the inflation numbers that came

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Speaker 2: in this week were on what I would call a

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Speaker 2: high end of what was expected. And if you look

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Speaker 2: at the first quarter, certainly inflation is elevated compared to

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Speaker 2: where it was as we ended twenty twenty three. At

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Speaker 2: the same time, it doesn't change baseline outlook that inflation

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Speaker 2: will continue to come down with a healthy labor market.

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Speaker 2: I just think it will take more time, and it's

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Speaker 2: premature to tell whether the elevated numbers that we just

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Speaker 2: saw are a bump along that path or something more concerning.

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Speaker 2: So I don't see it as a significant turn, but

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Speaker 2: important to continue to look at the data holistically and

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Speaker 2: let the data tell us what's really going on.

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Speaker 1: Well, the markets, to go back to them, have priced

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Speaker 1: out everything except maybe one and a half rate cuts

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Speaker 1: by the end of the year. Is it fair to

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Speaker 1: say that, unlike them, you really don't know what you're

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Speaker 1: going to do well.

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Speaker 2: Policy is not on a preset path, and I think

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Speaker 2: that's important. I think there's a maybe understandable desire to

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Speaker 2: have us map out exactly what's going to happen. But

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Speaker 2: in the current environment, what's really called for is patients

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Speaker 2: being very methodical and looking at the whole constellation of

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Speaker 2: information and not just focusing on one data reading or

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Speaker 2: another one. And so what I would say is that

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Speaker 2: we're continuing to form our outlook, recognizing that there are

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Speaker 2: lots there are n't certainties in their risks. So I

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Speaker 2: call myself a realistic optimist in that sense, realistic about

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Speaker 2: those risks and uncertainties, but still for lots of reasons,

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Speaker 2: very optimistic that we will see inflation come back down

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Speaker 2: and that labor markets will remain healthy.

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Speaker 1: Well, how unconvinced are you that inflation is not going

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Speaker 1: to come down as rapidly as you might have thought.

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Speaker 2: So I do think that we're going to have to

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Speaker 2: be patient and it may take more time. That is

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Speaker 2: one of my takeaways from some of the data that

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Speaker 2: we've seen. You know, at the same time, the data

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Speaker 2: are mixed, Mike. So, yes, the most recent inflation numbers

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Speaker 2: have been elevated compared to what I might have hoped for.

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Speaker 2: But at the same time, if you look at things

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Speaker 2: like wage rates, so wage growth has been faster than

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Speaker 2: it was pre pandemic, but once you factor in the

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Speaker 2: past price increases and importantly the productivity gains we've seen,

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Speaker 2: the wage growth that we're seeing is consistent with that

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Speaker 2: trajectory back down to two percent inflation, and I think

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Speaker 2: that's good news for workers as well. But my point

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Speaker 2: is that you need to look at the range of

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Speaker 2: data and not focus too much on one piece and

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Speaker 2: take the time to really see what the takeaways should be.

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Speaker 1: Well, you said yesterday that the danger of overtightening is

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Speaker 1: kind of moved out of the picture. At this point.

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Speaker 1: Growth is strong, unemployment remains low, inflation is at least sticky.

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Speaker 1: If nothing else, why cut rates at all.

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Speaker 2: So I wouldn't say that there is no risk of

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Speaker 2: us of you know, waiting too long. I do think

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Speaker 2: that it's two sided. But to your point, I certainly

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Speaker 2: do see more reason to focus on making sure that

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Speaker 2: we don't start easing too quickly.

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Speaker 1: We're resolute.

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Speaker 2: I'm certainly resolute about that commitment to bring inflation back

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Speaker 2: down to two percent. You know, I do see policy

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Speaker 2: as being moderately restrictive at this point, and in my view,

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Speaker 2: will be appropriate. As we get closer to that trajectory,

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Speaker 2: it will be appropriate to begin easing. But we're not

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Speaker 2: there yet, so I don't think that we would definitely

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Speaker 2: certainly want to stay where we are. My baseline would

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Speaker 2: still have us starting to ease later this year. But

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Speaker 2: when I see as likely to be later than I

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Speaker 2: had been previously thinking, I.

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Speaker 1: Have to ask, because everybody's going to bring up the

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Speaker 1: question is does the election interfere with timing?

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Speaker 2: Absolutely not. You know, as I've said a number of times,

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Speaker 2: focusing holistically on the data is really what determines appropriate policy,

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Speaker 2: and I have to say there's enough of that to

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Speaker 2: keep us very busy. So that is my focus, and

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Speaker 2: that's the focus of the committee.

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Speaker 1: You mentioned policy is moderately restrictive. What tells you that

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Speaker 1: and how do you know what level of restrictiveness you need?

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Speaker 2: So in terms of the last piece, that's where watching

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Speaker 2: the data comes from. Are we seeing the balance of

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Speaker 2: performance that we're looking for over time? You know, certainly

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Speaker 2: there's evidence of some restriction. We've seen housing market reactions,

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Speaker 2: We've seen some increase in delinquencies, We've seen some declines

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Speaker 2: in capital spending, and so there clearly is evidence in

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Speaker 2: a variety of places labor markets are coming into better balance,

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Speaker 2: and that's a really important one. At the same time,

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Speaker 2: consumption and demand have remained perhaps surprisingly strong given where

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Speaker 2: interest rates are and what we might have thought based

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Speaker 2: on history. But you know, we've seen in a lot

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Speaker 2: of context ways that the current context is somewhat different.

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Speaker 2: So I would characterize where we are as policy is

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Speaker 2: having a restrictive effect, which is what we want, but

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Speaker 2: it's perhaps moderately restrictive, and that calls again for patients

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Speaker 2: and being methodical as we look at all of the data.

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Speaker 1: We've now got pricing basically for a December right cut.

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Speaker 1: As markets move back and forth. But my nerdy economist

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Speaker 1: friends have spent the last two days putting PPI and

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Speaker 1: CPI into the PCE calculations, and everybody is saying PCE

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Speaker 1: is going to come in much milder than both of those.

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Speaker 1: If that's the case, can we say June might be

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Speaker 1: back on the table.

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Speaker 2: So I don't want to speculate again, not a preset path,

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Speaker 2: and I think we have to wait to see what

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Speaker 2: the data tell us. But to my earlier point, the

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Speaker 2: data had been mixed, and CPI and PCE don't always

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Speaker 2: move in lockstep. They certainly are very closely related, and

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Speaker 2: so I think we have to wait and let the

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Speaker 2: data tell us what's happening. And again, it's not just

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Speaker 2: the PCE, although that is certainly the preferred measure that

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Speaker 2: we that we are focusing on when we look at

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Speaker 2: our two percent target, it's all of it and how

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Speaker 2: it comes together collectively.

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Speaker 1: So wage data.

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Speaker 2: Will be important. When I look at the price data,

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Speaker 2: I also want to disaggregate and look at what's happening

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Speaker 2: to the different components because the dynamics there are different,

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Speaker 2: and that's informative for trying to understand where we might

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Speaker 2: be going, not just where we've been. The key question

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Speaker 2: is where are we going and what's that outlook like,

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Speaker 2: and trying to get to greater confidence before we change

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Speaker 2: the policy stance for Saint Lewis.

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Speaker 1: FED President Jim Bullard once said, during the aftermath of

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Speaker 1: the financial crisis, whatever you think the right rate for

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Speaker 1: the country is, this isn't it. Are you anxious to cut?

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Speaker 1: Do you want to cut? Do we need a cut?

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Speaker 1: Or can we live with rates at this level?

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Speaker 2: Well in the you know, in the near I don't

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Speaker 2: see urgency. I had been a bit concerned earlier in

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Speaker 2: the year, very early in the year, that there might

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Speaker 2: be some signs of labor market fragility. I'm seeing much

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Speaker 2: less reason for concern. But that again is why I

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Speaker 2: see the risks as being two cited. So I don't

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Speaker 2: see urgency, and I see lots of reasons for patients.

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Speaker 2: And over the longer term, I think we'll My expectation

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Speaker 2: is that we will ease and that over the longer

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Speaker 2: term inflation interest rates will be at lower levels. But

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Speaker 2: exactly what that looks like, it's really premature to be

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Speaker 2: too specific.

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Speaker 1: The data may be mixed. But what are CEOs in

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Speaker 1: your district? Saying about both employment growth and also about

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Speaker 1: whether or not they're still having to raise salaries and

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Speaker 1: whether they're going to have to raise prices.

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Speaker 2: So and we do have many conversations with people throughout

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Speaker 2: our district, large firms, small firms throughout New England, and

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Speaker 2: what I'm hearing is a couple of things. One is

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Speaker 2: quite a bit of optimism in terms of the economy's

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Speaker 2: performance overall. I'm hearing information consistent with labor markets really

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Speaker 2: coming into better balance, being easier to hire, except in

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Speaker 2: a couple of sectors like healthcare, where that can still

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Speaker 2: be quite a challenge. So you know, it's their differences

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Speaker 2: across different sectors and localities, but that firms have not

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Speaker 2: been expecting the same kinds of wage increases that they

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Speaker 2: had needed before to retain workers, quit rates or way down,

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Speaker 2: much less turnover, and that helps with productivity, right because

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Speaker 2: if you are focused continually on having to fill those

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Speaker 2: gaps because people are leaving and then you have to

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Speaker 2: train people to come up to speed, it's hard to

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Speaker 2: maintain that productivity that firms really need. And that's part

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Speaker 2: of the good productivity story that we've seen that has

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Speaker 2: helped with economic growth and helped us to bring inflation

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Speaker 2: down as much as we did in twenty twenty three,

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Speaker 2: despite the fact that growth has been continued to be

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Speaker 2: so robust. So there's a strong supply side story there

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Speaker 2: as well. Well.

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Speaker 1: Productivity is one half of potential growth, and you're talking

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Speaker 1: about productivity being good. A lot of argument these days

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Speaker 1: that we're seeing more immigration than we're really accounting for,

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Speaker 1: and that basically potential growth is higher than we thought

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Speaker 1: it was. Do you agree with that?

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Speaker 2: So, I certainly have seen increases in labor supply as

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Speaker 2: being a key part of that supply improvement story that

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Speaker 2: has certainly benefited the economy. And the labor supply increases

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Speaker 2: have included immigration, and there's been a lot of work

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Speaker 2: which has come from different people finding similar stories in

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Speaker 2: terms of the increase in immigration playing a role. But

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Speaker 2: we've also seen an increase in labor force participation, particularly

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Speaker 2: in prime age workers that was not anticipated, and really

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Speaker 2: notably among prime age women. Even though we know that

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Speaker 2: the I don't Care challenges continue and those are really

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Speaker 2: quite stark. So there have been some surprising supply improvement news,

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Speaker 2: and we'll have to see the extent to which those continue.

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Speaker 2: But it's certainly been an important part of the story

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Speaker 2: so far.

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Speaker 1: One last question for our money market desk friends, is

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Speaker 1: you had a staff brief again, a discussion of whether

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Speaker 1: or not and when to taper quantitative tightening. The agreement,

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Speaker 1: apparently according to the minutes, was that you should announce

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Speaker 1: it fairly soon. Can we expect something like that at

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Speaker 1: the June meeting.

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Speaker 2: So no decisions were made. The minutes summarized the discussion

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Speaker 2: that we had, and it really draws from lessons from

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Speaker 2: the past period of quantitative tightening from twenty seventeen to

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Speaker 2: twenty nineteen, and some of the key lessons from that

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Speaker 2: experience are the importance of doing the tightening, in other words,

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Speaker 2: run off of the balance sheet in a way that

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Speaker 2: is smooth and does not cause stresses. You know that

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Speaker 2: proverbial should be like watching paint dry, right, It shouldn't

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Speaker 2: be unexpected. And so there was broad agreement that slowing

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Speaker 2: the pace, which is currently about twice as fast as

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Speaker 2: it had been in that earlier period, and doing so

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Speaker 2: sooner to ensure that it continues to be quiet and

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Speaker 2: orderly and passive in the backgrounds broad agreement for that,

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Speaker 2: and also to start that sooner, but no specific decisions

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Speaker 2: have been made yet.

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Speaker 1: So we could get taper before we get a red cut.

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Speaker 2: Those things are I see them as being independent, so

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Speaker 2: that could happen.