The U.S. economy will start to soften as the year draws to a close and then the weak growth will persist in 2024, said Boston Fed President Susan Collins, on Wednesday.
“I do expect to see slowing growth by the end of this year and throughout 2024,” Collins said, in a speech to the New England Council.
Recent U.S. economic data has been showing the economy accelerating . The Atlanta Fed’s GDPNow tracker forecasts gross domestic product will pick up to a 5.6% annual rate in the third quarter, up from a 2.1% rate in the April-June quarter.
Below the surface, Collins said she saw some signs of slowing. She said that households’ excess savings from the pandemic are declining and business cash levels are also returning to pre-pandemic trends.
“Demand should slow as spending becomes more interest sensitive,” Collins said.
Fed officials believe the economy needs to slow in order to keep inflation moving down towards the central bank’s 2% target.
Collins repeated that she believes the Fed can bring inflation toward price stability with “an orderly slowdown” and only a modest unemployment rate increase, rather than a recession.
Going into the Fed’s September 19-20 policy meeting, Collins said that the Fed can be patient with interest rate policy. She said the Fed may be near, or at, the peak for the Fed’s policy rate, but further monetary tightening could be warranted, depending on the data, she added.
“Patience will give us time to better separate “signal” from “noise” as we assess available data and to balance risks as the effects of tighter policy continue to work through the economy,” Collins said.
The 10-year Treasury yield BX:TMUBMUSD10Y slipped to 4.25% on Wednesday.
