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Federal Reserve's Susan Collins Backs Maintaining High Interest Rates

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Boston Federal Reserve President Supports Maintaining Elevated Interest Rates

Susan Collins, the president of the Federal Reserve Bank of Boston, expressed her endorsement on Friday for keeping interest rates high as the battle against excessive inflation continues. Speaking to a banking group in Maine, Collins emphasized the possibility of further rate hikes if economic data does not cooperate. She acknowledged that rates may need to remain elevated for a longer period than previously projected, indicating that further tightening is still on the table to achieve the Fed's mandate.

Recent Monetary Policy Decisions

Collins' remarks come just two days after the Federal Open Market Committee (FOMC) decided against raising rates during its two-day meeting. As an FOMC voting member this year, Collins played a role in this decision. The current target range for the federal funds rate is between 5.25% and 5.5%. While rates were not increased, officials signaled the possibility of one more increase this year, followed by potential cuts in 2024.

Assessing Inflation and Economic Rebalancing

Collins acknowledged that recent inflation data has shown promising signs of moderation and economic rebalancing. However, she cautioned against premature declarations of victory, particularly as core inflation, excluding shelter costs, remains elevated. The impacts of the Fed's monetary policy moves, including 11 interest rate increases and a significant decrease in bond holdings, may be taking longer to fully manifest in the economy due to the strong cash positions held by consumers and businesses.

Path to a Soft Landing for the Economy

While Collins acknowledged the widening path to a soft landing for the economy, she emphasized that Fed policy is well positioned to achieve a decrease in inflation without triggering a recession. The central bank's actions aim to strike a delicate balance between curbing inflationary pressures and ensuring the stability and growth of the overall economy. As the situation continues to evolve, the Fed remains vigilant in its commitment to achieving its mandate while carefully monitoring economic indicators and data.

Implications of Elevated Interest Rates for New Business Formation

The endorsement by Susan Collins, President of the Federal Reserve Bank of Boston, for maintaining high interest rates could have significant implications for new business formation. Collins' stance on the necessity of high rates to combat inflation may impact the cost of borrowing for new businesses, potentially making it more expensive to secure startup capital.

Monetary Policy and Its Impact on Startups

The recent decision by the Federal Open Market Committee (FOMC) to maintain current interest rates, coupled with the potential for further increases, could create a challenging environment for new businesses. High interest rates can increase the cost of loans, making it more expensive for new businesses to secure the necessary funding. This could deter potential entrepreneurs from starting new ventures or force them to seek alternative funding sources.

Inflation and Economic Rebalancing

Collins' caution against declaring victory too soon over inflation, despite promising signs of moderation and economic rebalancing, suggests that the current monetary policy stance could persist. This could mean a prolonged period of high interest rates, potentially impacting new business formation and growth.

The Path to Economic Stability

While the path to a soft landing for the economy appears to be widening, the Fed's policy aims to decrease inflation without triggering a recession. This delicate balance could impact new businesses, as they must navigate the challenges of high interest rates while also capitalizing on the opportunities presented by a stable and growing economy. As the situation evolves, new businesses will need to remain adaptable and resilient in the face of these monetary policy decisions.
Story First Published at: https://www.cnbc.com/2023/09/22/feds-susan-collins-expresses-support-for-holding-interest-rates-high.html
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