Susan Collins, CEO of the Boston Federal Reserve Bank, spoke yesterday about the prospects for the US economy, at a program sponsored by National Association of Corporate Directors – New England. After an erudite and informative presentation, the audience learned much about how the Fed operates, and little new about where the economy was going nor how fast it was going there.
I hasten to add that this is no criticism; the Fed’s public announcements are pretty specific about what their public stance will be, and it is foolish to expect the head of one of the constituent Fed banks to say, in effect, “well, no, let me give you the real scoop.” Below for the record, is an anecdotal summary of certain of her remarks:
The Fed’s mandate here is to achieve price stability and robust employment. Recent inflation was very rapid, unusually so. It is unclear when it will show sufficient drop to trigger the anticipated but now seemingly delayed decline in interest rates.
The US economy was remarkably strong during the rate hikes. The reasons were: supply chain was fixed; employment surged, in part due to immigration; employee productivity surged; consumers had a nest-egg from the pandemic to fund domestic spending, which is two-thirds of GDP; salary increases were just catch-up to prices and were confined mostly to lower wage-earners,.
Are we assured of a so-called “soft landing”? Unclear. Just now, core inflation ticked up slightly. “There is so much we don’t know.” (If the Fed doesn’t know, what are we to conclude?) The economy will slow down–unclear what that means in detail. “We have been surprised so often.”
As to their mission to support labor: problems abound in affordable housing, child care costs, transportation. Not a surprise that these issues are significant in New England. Nationally, housing costs actually declined in 2023, but not the future near-term trend and was not even true in New England. Low mortgage rates now in effect, vs high rates now offered, means that owners do not move or downsize (they are in “houselock”) and this reduces housing stock for sale which further drives up housing prices for both purchase and rental.
The pandemic clearly altered current patterns of work, which has impact on housing also. What does the Fed think about whether work patterns we are seeing now reflects the future of work? “Not settled.”
Questioners probed for clues about rate cuts and soft landings, without eliciting new insight, just recitation of factors. It was also noted that inflation creates higher income for retirees, who are spenders in the economy and a growing population segment.
My conclusions: the Fed is weighing many factors relative to rate cut timing and amounts, given the numerous above-cited unknowns and lack of certainty of a soft landing; Ms. Collins never once said in substance that a “soft landing” was the Fed’s main goal, and I was afraid to ask “so the primary goal is to kill inflation and not to assure a soft landing, is that right?”; thus it is unclear to me whether or not the audience just assumed that a soft landing was primary; this assumption of mine, with lack of audience probing, was the most fascinating part of the entire program for me.
I leave to my readers the impact of all this on your spending, investment and life planning. We are promised, from high authority, lack of clarity, lack of settlement, and a history of surprises.