WORCESTER – Susan M. Collins, president and CEO of the Federal Reserve Bank of Boston, said Wednesday night at the Worcester Regional Research Bureau’s 39th annual meeting at the DCU Center that the U.S. economy is in a good place.
As the evening’s keynote speaker, she stated, “I like to share my ‘bottom line’ up front and will do so by saying that overall the U.S. economy is in a good place, which monetary policymakers are working to maintain.”
Collins pointed out that activity continues to grow at a solid pace and she anticipates that inflation will return to the Federal Open Market Committee’s two percent target “in a timely way and, crucially, amid a healthy labor market.”
On monetary policy, she said given the disinflation progress to date, further adjustments in the policy rate will likely be necessary after the September initial rate cut.
“My confidence in the disinflation trajectory has increased,” she said, “but so have the risks of the economy slowing beyond what is needed to restore price stability.” Collins said she will remain highly attentive to both price stability and maximum employment, the two parts of the Federal Reserve Bank’s Congressional mandate.
Collins stated that labor market conditions are no longer too hot or too cold, softening from the unsustainably tight job market conditions of a year ago.
She pointed out that the unemployment rate remains low by historical standards and that job growth has slowed on balance in recent months, but remains relatively solid. Initial claims for unemployment insurance continue to be low and continuing claims remain muted.
“A labor market with supply and demand in better balance,” she said, “is a key reason for disinflation becoming more broad based.”
Recent data, including September’s unexpectedly robust jobs report, bolster Collins’ assessment that the labor market remains in a good place overall.
Collins said the goal does not involve further cooling in the labor market.
Collins stated that inflation’s components show services prices, excluding housing, are expanding at a rate more consistent with two percent overall inflation while housing inflation has moderated some recently, but remains the most “sticky.”
Housing inflation, according to Collins, “remains above its pre-pandemic average despite some recent improvements. However, there are good reasons to think that this stickiness in current shelter inflation reflects existing rents still catching up to new market rents.”
Collins also said that current elevated wage growth reflects robust gains in worker productivity and should not necessarily lead to additional price pressures. Collins pointed to Boston Fed research that concludes nominal wage growth could continue to exceed inflation for a while, but remain consistent with the on-going disinflation process.
Collins calls herself a “realistic optimist” and she said he recognizes there are risks on both sides of this favorable outlook. While household net worth remains quite elevated by historical standards, which could contribute to a faster-than-expected pace of growth in consumer spending, strains are starting to emerge, especially at the lower end of the income distribution. For example, credit card delinquencies have risen to above pre-pandemic levels, although they are still low by recent historical standards.
Collins praised the rapid population growth in the city of Worcester. The city had been hit hard by the decline in manufacturing jobs, but Collins congratulated Worcester on its revitalization, crediting its central location, strong local leadership and development of an important mix of sectors. Collins pointed out that over the last decade Worcester has experienced rapid employment growth in professional and business services, more than double the pace of growth in the state and the U.S.
The Federal Reserve Bank of Boston’s “Leaders for Equitable Local Economies” program worked with the city of Worcester in applying for funding from the American Rescue Plan Act of 2021, which supported communities hit hardest by COVID-19. The LELE helped boost Worcester’s allocation from $10 million to $50 million.
Following her remarks and slide show presentation, Collins took a few questions from the audience. In response to a question asked about housing, Collins said, “It is the thing that I hear about the most frequently as I talk to stakeholders across the region and is something that is challenging.”
She said she also hears from employers about the lack of affordable housing presenting a challenge to hiring people.
She pointed out that availability and affordability of housing is an issue across the income range.
Collins said some housing challenges, such as controlling inflation and borrowing costs, relate to the Federal Reserve Bank, but others play a key role in housing supply.
“So it’s going to take all of us working together,” she said, “to be able to address the very real housing challenges that we face across the country and certainly here in New England.”
Paul Matthews, executive director and CEO of the Worcester Regional Research Bureau, said it was the first time that Collins has addressed Central Massachusetts.
When Collins joined the Federal Reserve Bank of Boston on July 1, 2022, she became the first woman of color to lead any of the 12 regional reserve banks in the Federal Reserve System, the U.S. central bank. In her role, she is also a member of the Federal Open Market Committee, the monetary policymaking body in the U.S.
Collins is a published international macroeconomist with a lifelong interest in policy and its impact on living standards.
Collins has an extensive background in economics. She graduated from Harvard University with a BA in economics in 1980 and earned her Ph.D. in economics from MIT in 1984. She went on to teach economics at Harvard and then at Georgetown University while also serving as a senior fellow in Economic Studies at the Brookings Institution in Washington, D.C. She later taught at the University of Michigan.
She served on the Federal Reserve Bank of Chicago board of directors from 2013 to 2022.
In 2020, she became the 16th provost and executive vice president for academic affairs at the University of Michigan, a position she held until joining the Federal Reserve Bank of Boston.
Bill Doyle has been a professional journalist for 47 years, most of them as a sports writer for the Telegram & Gazette. He covered the Boston Celtics for 25 years and has written extensively about golf, boxing and local high school and college sports. He also worked for the campus newspaper when he attended UMass-Amherst. He can be reached at billdoyle1515@gmail.com
