MW Fed's Collins says her concerns about labor-market fragility have decreased

By Greg Robb

Boston Fed president sees room for wage gains without fueling inflation

The U.S. labor market remains healthy and the Federal Reserve can take a gradual and patient approach to future rate cuts, Boston Fed President Susan Collins said Thursday.

"My concerns about emerging labor-market fragility have decreased more recently, as the unemployment rate stabilized after rising notably in the first half of 2024," Collins said in a speech to a commercial real estate trade group in Boston.

The labor market has stayed healthy "as unsustainably hot job-market conditions from two years ago cooled in an orderly way," Collins said.

The Labor Department will release the December jobs report on Friday. The consensus forecast of Wall Street economists is for an added 155,000 nonfarm-payroll jobs in December, down from 227,000 in the prior month. The unemployment rate is expected to remain at 4.2% for the second straight month. The rate has come down after touching 4.3% in July.

Collins, who is a voting member of the Fed's interest-rate committee this year, said current labor-market conditions are unlikely to be a source of new inflation pressures.

"There is likely some room for additional wage gains that would help to raise the purchasing power and economic wellbeing of workers without fueling inflation," she said.

A weak jobs report in the late summer played a large role in the Fed deciding to start to cut its benchmark interest rate by half a percentage point in September, followed by two quarter-point cuts, one in November and another in December.

In her speech, Collins said she supported the rate cuts in November and December, although the most recent one was a "closer call."

Collins said her current outlook was broadly in line with the median forecast in the Fed's latest projections, which call for two additional quarter-point cuts this year.

"The appropriate policy strategy is gradualism, anchored by holistic data assessment, careful analysis and patience," Collins said.

Minutes of the Fed's December meeting reveal that the consensus is that the Fed wants to delay rate cuts until "Trump uncertainty lifts," said Tim Duy, chief U.S. economist at SGH Macro Advisors, in a note to clients.

Collins said the Fed could hold rates at current levels for longer if there was little further progress on inflation, or ease sooner "if the need arises."

In a separate speech, Philadelphia Fed President Patrick Harker said he expects the central bank to continue to cut rates this year.

"Looking at everything before me now, I am not about to walk off this path or turn around," Harker said, cautioning that this was only a projection, not a promise.

He said the speed of the cuts will depend on the data.

"At this moment, I'm still just putting one foot in front of the other," he said.

Harvard economist Jason Furman said he thought the Fed would only cut rates once this year if the economy stays healthy.

Traders in derivative markets are now pricing in two quarter-point cuts by the end of the year.

-Greg Robb

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January 09, 2025 09:33 ET (14:33 GMT)

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