Fed’s Susan Collins Anticipates More 'Additional Policy Tightening'

When the personal consumption expenditures (PCE) data came in on March 31, many found it encouraging.

“Encouragingly, the headline and core PCE price indexes came in a bit softer than forecast, both rising 0.3% in February, and this allowed the year-on-year pace for both to decelerate further – 5% for overall consumer inflation and 4.6% for core PCE price inflation,” Nationwide Chief Economist Kathy Bostjancic wrote in emailed remarks.

Good news, certainly, though more nuanced than a thumb up or down.

“Less encouragingly, core services less housing—the super core price measure—rose to 4.4% on a year-on-year basis from 4.3% in January and is only down slightly from the 4.7% peak in November 2021,” Bostjancic continued. “This supports Chairman Powell’s recent comment that we have seen very little disinflation in the super core services price measure. As such, Fed officials will continue to be concerned that the stickiness in core services prices could prevent inflation from cooling sufficiently and see the tightness in the labor market continuing to place upward pressure on wages and prices in the services sector.”

Susan Collins, president of the Federal Reserve Bank of Boston, said in a speech at the March 30 39th Annual NABE Economic Policy Conference, “While recognizing the heightened uncertainty, I believe staying the course with a one-quarter-percent increase in the policy rate at last week’s FOMC meeting was appropriate. Similarly, given current information, I see the median federal funds rate path for 2023 in last week’s Summary of Economic Projections from Fed policymakers (the SEP) as reasonably balancing the risk of monetary policy not being restrictive enough to bring inflation down, and the risk that activity slows by more than needed to address elevated price pressures.”

The SEP did indicate a colder economic wind coming. The median expectations from the Fed and its bank presidents took a turn downwards and looked like a tacit admission of a recession.

“Similar to the SEP median, I currently anticipate some modest additional policy tightening, and then holding through the end of this year,” Collins said. “Of course, I’ll be carefully watching a range of indicators including data on inflation, spending, labor markets, and financial conditions.”

“If the Fed decides to continue its campaign of interest rate hikes, this will continue to slow the level of dealmaking within commercial real estate at large,” Carlos Vaz, Founder of CONTI Capital, said in an emailed statement. He also more specifically addressed multifamily. “Not only do rising interest rates increase the cost of debt, thus making multifamily asset purchases more difficult for some, but the cooling of the economy means apartment demand is likely to continue moderating as well. We have seen demand moderation within the U.S. multifamily landscape since the third quarter of 2022 as record rent growth has eased.”