The new president of the Federal Reserve Bank of Boston, Susan Collins, stated in her first public speech that unemployment needed to be increased to lower historically high inflation.

Collins further suggested any economic downturn would likely be modest, in the Sept. 25 speech to the Greater Boston Chamber of Commerce.

Her comments add to similar remarks made by her colleagues, like Raphael Bostic, President of the Atlanta Fed, who spoke on CBS’s Face the Nation on Sept. 25.

Collins said the American economy is strong enough to withstand the aggressive interest rates hikes by the Federal Reserve to combat inflation, which is at a 40-year high and suggested that prices “perhaps may have peaked.”

Consumer prices rose 8.3 percent in August from a year earlier as inflation continues to rise, after hitting a high of 9.1 percent in June.

Collins, who was sworn in during July, is one of 12 voting members of the Fed’s policymaking committee.

How Hard or Fast to Curtail Economic Growth

Fed Chairman Jerome Powell announced back in August that fighting inflation would most likely “cause pain” for households and businesses, as rate hikes slowed economic growth and hiring.

The lifting of the Fed’s benchmark rate is pushing up the cost of consumer and business loans, mortgage rates, auto loans, and credit cards.

Total benchmark rates were raised 3 to 3.25 percent last week, after another 75 basis point hike, the highest since 2008 at the start of the Great Recession.

The Fed intends to raise borrowing rates to 4.5 percent or higher by early next year, in order to reach its planned annual inflation target rate of 2 percent.

“Accomplishing price stability will require slower employment growth and a somewhat higher unemployment rate,” Collins said.

She acknowledged that job losses are painful and said “there is apprehension about the possibility of a significant downturn.”

The fact that job growth remains solid and that consumers are still spending at a decent but slower pace has encouraged the hawkish rate policy of slowing inflation by curtailing consumer consumption.

Collins, like her colleague Bostic, said that “the goal of a more modest slowdown, while challenging, is achievable.”

Bostic cited continued strong growth in payroll jobs, even after the Fed approved its third consecutive 75 basis-point rate increase last week, amid roiling markets.

“We need to have a slow down” to get inflation under control, said Bostic the previous day.

“But I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain,” he added.

Policymakers at the Fed are attempting to achieve an economic “soft landing” by slowing down consumer and business spending enough to lower inflation to a certain point without causing a worse recession.

The Fed’s quarterly economic and interest rate projections, which were released after the policy meeting, showed that central bank policymakers expect unemployment to reach 4.4 percent by the end of next year—up from the current 3.7 percent.

Critics Begin to Question Hawkish Fed Policy

Many economists have said that it would be extremely difficult to get inflation down close to the Fed’s 2 percent target by late 2024 and that it should reduce its expectations to avoid hurting the economy.

They are increasingly skeptical that the Fed can pull it off its goals without causing a depression, sparking a debate on the hawkish interest rate policy.

Some former cabinet officials from previous administrations, like Mick Mulvaney and Austin Goolsbee, have suggested that ongoing supply side energy driven inflation is the real prime mover, not job gains or spending.

Even harsher critics, such as former assistant treasury secretary under President Ronald Reagan, Paul Craig Roberts, predict that higher interest rates will only increase costs, disrupt supply, and will in the end collapse the U.S. economy.

“In the U.S., higher prices are due to shortages resulting from the lockdowns that closed businesses and broke supply chains,” Roberts said.

“In America’s global world, problems abroad restrict supply here. The point is that the inflation is not a monetary inflation.”

“Therefore, the Federal Reserve’s policy of raising interest rates is nonsensical. Higher interest rates just add to costs, shrink supply, and mean higher prices,” Roberts concluded.

Powell did admit after last week’s Fed policy meeting that “the chances of a soft landing are likely to diminish” as the Fed steadily raises borrowing costs.

“No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” the Fed chair concluded.


Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.

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