The debate over the Federal Reserve’s next move gained fresh momentum Tuesday after Boston Fed President Susan Collins said she believes further interest rate cuts this year would be "prudent" to support the labor market. Her comments, delivered at a Greater Boston Chamber of Commerce event, align with recent remarks from Fed Chair Jerome Powell, who also flagged signs of labor market weakness.
Collins: Inflation Risks Contained, Jobs Now the Priority
Collins argued that while inflation remains above the Fed’s 2% target, the risks tied to rising prices have eased compared to the downside risks facing employment. "Inflation risks have been somewhat contained, but employment faces greater downside risks, so it seems prudent to normalize interest rates a bit more this year to support the labor market," she said.
She added that even with additional accommodation, monetary policy would remain "moderately restrictive," ensuring inflation continues to decline as the effects of tariffs work through the economy.
Markets Expect Another Cut
Futures markets are already pricing in a 97% chance of another rate cut by the end of October, according to CME FedWatch data. If delivered, it would mark the Fed’s second cut this year, following a quarter-point reduction in September.
Collins’ comments reinforce the market’s view that policymakers are leaning toward easing, particularly as hiring slows. She noted that to keep the unemployment rate stable, the U.S. economy now needs to add only about 40,000 jobs per month, down from roughly 80,000 before the pandemic, due to slower labor force growth.
Powell Echoes Concerns
Earlier in the day, Powell also acknowledged that the labor market has "softened pretty considerably," suggesting the Fed is closer to balancing the risks between inflation and employment. His remarks, combined with Collins’ endorsement of further cuts, highlight a growing consensus within the central bank that more easing is appropriate.
The Fed’s next policy meeting is scheduled for October 28–29, where Collins will have a vote.
Modest Unemployment Rise Expected
Collins predicted only "relatively modest increases" in the unemployment rate through early 2026, with business hiring expected to recover once tariffs and broader economic uncertainty fade. She also pointed out that it remains difficult to separate how much of the slowdown in hiring is due to weaker demand versus structural factors like immigration policy.
The Bigger Picture
The Fed has been walking a fine line between keeping inflation in check and preventing unnecessary damage to the labor market. While consumer spending remains solid, policymakers are increasingly focused on employment risks. With both Powell and Collins signaling openness to more cuts, investors are bracing for at least one additional move before year-end.
The Bottom Line
The message from Fed officials is clear: rate cuts are back on the table. With inflation risks easing and the labor market showing cracks, the central bank appears ready to provide more support. Markets will be watching closely at the October meeting for confirmation that the Fed’s pivot toward easing is underway.