By Nicole Goodkind

Boston Federal Reserve President Susan Collins is calling for further interest rate cuts this year, citing mounting concerns about a weakening labor market.

"With inflation risks somewhat more contained, but greater downside risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market," Collins said Tuesday afternoon at the Greater Boston Chamber of Commerce.

Even with additional rate cuts, monetary policy would remain mildly restrictive, "which is appropriate for ensuring that inflation resumes its decline once tariff effects filter through the economy," she said.

While the economy sits on solid ground with robust spending, Collins acknowledged that inflation has stayed above the Fed's 2% target for more than four years. Both short- and long-term inflation measures, however, are relatively stable, she said.

The greater concern now lies with the labor market, Collins said. "The labor market has cooled to a curious balance with little hiring or firing and still low unemployment," she explained. "But further softening would generate unwelcome slack, leaving the economy more vulnerable to adverse shocks and possibly triggering more unfavorable dynamics."

This presents a challenge to the Fed's dual mandate of pursuing both full employment and price stability -- two goals now pulling in different directions.

Collins also noted the difficulty in determining whether the labor market changes stem from lower demand for workers or reduced supply because of restrictive immigration policy. She estimated the economy now needs only about 40,000 jobs a month to keep unemployment stable, half the prepandemic rate of 80,000.

Federal Reserve Chair Jerome Powell echoed these concerns earlier Tuesday, pointing to greater downside risks facing the labor market.

Both Collins and Powell align with the majority of policymakers in supporting at least one more rate cut this year, likely at the central bank's Oct. 28-29 policy meeting. Investors also see a 97% chance of a cut in October, according to the CME FedWatch tool.

The Fed lowered rates by a quarter percentage point in September to a target range of 4.00% to 4.25%. While the decision was nearly unanimous -- with only newly installed Fed governor Stephen Miran dissenting in favor of a larger half-point cut -- the accompanying economic projections revealed deeper divisions. Policymakers were nearly split between those favoring additional cuts this year and those believing the current stance is sufficiently accommodative.

"There is no risk-free path for policy as we navigate the tension between our employment and inflation goals. This challenge was evident in the dispersion of Committee participants' projections at the September meeting," Powell said Tuesday.

Collins cautioned that the path forward remains flexible. "I can envision scenarios where appropriate policy calls for holding rates steady later this year and into next, as we assess effects of the recent policy actions and get more information," she said.

Write to Nicole Goodkind at nicole.goodkind@barrons.com

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October 14, 2025 16:47 ET (20:47 GMT)

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