Federal Reserve's Collins: Rate cuts in 2025 will be lower than previously expected.

Boston Fed President Collins said that due to strong employment data and persistent inflation, she is inclined to lower interest rates in 2025 by a smaller magnitude than expected a few months ago. Collins emphasized the need for patience, stating that her interest rate expectations align with the median forecast released by officials after the December Fed meeting. This indicates two rate cuts this year, lower than the four predicted in September. "As time goes on, further policy easing is appropriate, but may be less than what I envisioned in September," Collins said in an interview with Bloomberg on Wednesday. "I believe that taking time to patiently and comprehensively evaluate data - maintaining analytical capabilities and patience - is likely appropriate when considering policy in 2025." Fed officials cut interest rates for the third consecutive time at the December meeting, lowering the target range to 4.25% to 4.5%. Fed Chair Powell stated after the meeting that officials will focus on further inflation progress when considering future rate adjustments. Collins, who will vote on this year's policy decisions, stated that interest rates are still at a restrictive level but are closer to neutral after the central bank reduced borrowing costs by a full percentage point since September. The neutral rate refers to the interest rate setting that neither promotes nor slows economic growth. According to futures contract pricing, investors widely expect Fed policymakers to keep rates unchanged at the January 28-29 Washington meeting. Inflation fluctuations Collins stated that she still expects inflation to decrease, although upside risks have increased and progress may be "bumpy" and "uneven." "My basic forecast is for inflation to continue to decline, maybe slower than I anticipated," she said. She mentioned that positive inflation news would support a prompt policy easing. However, if the data is not clear, officials may want to wait longer. In fact, Collins stated that the uncertainty surrounding the incoming Trump administration's fiscal policy makes it more difficult to predict how the economy and inflation will develop. "There is a lot of uncertainty about what policy changes may occur once the new administration takes office," she said. "I don't think we have enough information to truly consider how to approach this issue." Collins stated that her concerns about the labor market are not as severe as before. However, she noted that she will closely monitor any deterioration in the job market, pointing out that wage growth slowed down last year and became more concentrated. "I was concerned about potential vulnerabilities in the labor market before. These concerns have eased," she said. She added that overall, the US economy is in a "good state."