Even with further rate cuts, policy would still be 'mildly restrictive,' Boston Fed's Collins says

[Federal Reserve Bank of Boston building - Financial District - Boston Massachusetts]
APCortizasJr

The current economic environment is challenging for monetary policymakers, "because rising inflation would call for a tighter policy stance, while a softening labor market would call for a less restrictive one," Federal Boston Fed President Susan M. Collins said on Tuesday.

"Policy actions must balance both sides of the Fed's dual mandate," she said in a speech. That's complicated by the reduced availability of economic data due to the government shutdown, she added.

Collins expects more negative impacts from tariffs over the rest of the year and into early 2026. On the labor side of the equation, both labor supply and demand appear to growing more slowly. With that said, she still favors further interest rate cuts.

"With inflation risks somewhat more contained, but greater downside risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market," Collins said. Even with some more easing, she expects that monetary policy would still be "mildly restrictive," which will continue to pressure inflation downward.

As she sees the current economic picture, generally healthy financial positions of firms and households are supporting resilient demand, allowing spending growth. Still, there are signs of strain for smaller firms and lower-income households, Collins said.

Economic uncertainty is weighing on the economy, but it's not stopping it. "While I continue to hear from contacts around New England about economic uncertainty weighing on investment decisions, many firms seem unwilling to postpone investments related to automation and AI. Receptive credit markets and still-favorable financial positions, especially for larger firms, give many companies the capacity to make these expenditures," she said [https://www.bostonfed.org/news-and-events/speeches/2025/assessing-balance-of-risks-in-economy.aspx].

UPDATED AT 4:12 PM ET: "Inflation certainly continues to be top of mind," Collins said. It's one of the complaints she hears most often, more related to elevated price levels rather than the actual rate of inflation.

Uncertainty about where tariffs will land is another issue. She said it was always her view that it would take quite a while before tariffs completely filter through the economy.

Other things she's watching carefully, though they're not yet creating inflationary pressures are — expectations which influence behavior, i.e., long- and short-term inflation expectations, and wage growth, which remains above pre-pandemic levels.

Developing... check back for updates.

MORE ON THE US ECONOMY

* Powell says Fed's QT may stop in months ahead, job-market prospects worsen [https://seekingalpha.com/news/4503976-feds-quantitative-tightening-may-stop-in-months-ahead-powell-says#source=url_first_level%3Amarket-news%7Csection%3Aus-economy%7Csection_asset%3Anews_title]
* One Does Not Simply Impose 100% Tariffs On China [https://seekingalpha.com/article/4829555-one-does-not-simply-impose-100-percent-tariffs-on-china]
* Friday Freakout And Monday Makeup: What Volatility Says About The Economy [https://seekingalpha.com/article/4829839-friday-freakout-and-monday-makeup-what-volatility-says-about-the-economy]
* Philly Fed's Paulson signals supports for two more quarter-point cuts this year [https://seekingalpha.com/news/4503666-philly-feds-paulson-signals-supports-for-two-more-quarter-point-cuts-this-year#source=url_first_level%3Amarket-news%7Csection%3Aus-economy%7Csection_asset%3Anews_title]