In his first public appearance since taking office earlier this year, the Fed’s Boston president said the Fed’s battle to rein in rising inflation could lead to higher unemployment.
“I do expect that achieving our price stability goals will require slower job growth and slightly higher unemployment,” Susan Collins, president and CEO of the Boston Federal Reserve, told the Greater Boston Chamber of Commerce.
Her appearance in the chamber on Monday was her first public event since accepting the role of the Fed’s chief federal financial officer in Boston.
Collins, the first black woman to lead the center’s Federal Reserve branch, said she is well aware of what higher unemployment means for communities of color and other underserved populations.
“I take very seriously that unemployment is painful,” she said. “And its costs are disproportionately concentrated among traditionally marginalized groups.”
Collins’ comments came days after the Fed’s board announced it would raise interest rates by a further three-quarter percentage points, while Fed Chairman Jerome Powell said inflation may require slower growth, more rate hikes and subsequently higher unemployment.
Powell also acknowledged last week that a longer period of inflation “may reduce the likelihood of a soft landing” and that the central bank’s best efforts could inevitably push the economy into a recession.
Some sort of soft landing is still possible, but consumers will feel some pain along the way, Collins said.
“There is reason to be more optimistic about the ability to achieve the necessary slowdown in demand without causing this sharp downturn. The balance sheets of households and businesses are much stronger than in previous tightening cycles, reducing spending and investment sharply as interest rates rise. risk,” she said.
Another reason for optimism, according to Collins, is that employers still seem unable to fill open positions.
“Labor market conditions are also different from past cycles. Companies appear to have too few workers, not a surplus, suggesting that this time around a slowdown in activity may have less of an impact on employment,” she said.
The Federal Reserve has been raising its benchmark interest rate at a historic pace in recent months in response to rising inflation-related costs. Higher interest rates should cool demand for financial products and ease strained supply chains.
A soft landing is said to occur when inflation eases but the economy does not slip into recession.
The Fed does not have a good track record of successful soft landings, with only one success in 16 attempts.
The Herald Telegraph Service contributed to this report.