Boston Federal Reserve Bank President Susan Collins stated that the Federal Reserve should continue lowering interest rates this year to support the labor market, while maintaining rates at a sufficiently high level to ensure inflation remains controlled.

In prepared remarks at a Boston Fed event on Tuesday, Collins said: "Given that inflation risks are somewhat more contained while employment faces greater downside risks, making policy slightly more normalized this year to support the labor market appears to be a prudent move."

She added: "Even with some additional easing, monetary policy would remain slightly restrictive, which is appropriate for ensuring inflation can resume its decline after tariff effects work their way through the economy."

Market contracts show investors are betting Fed officials will cut rates at their meeting later this month, which would mark the second rate reduction this year. Previously, Fed policymakers lowered the benchmark rate by a quarter percentage point in September, bringing the target range down to 4%-4.25%.

Collins noted that it's difficult to determine how much of the recent hiring slowdown is due to declining labor demand versus reduced labor supply caused by a significant decrease in immigration. She said that maintaining stable unemployment in the future may require only 40,000 monthly job gains, compared to about 80,000 before the pandemic.

The Boston Fed president indicated she expects unemployment to rise "relatively modestly" this year and into early 2026, but hiring should eventually rebound as uncertainty around tariffs and the economy subsides.

Fed Chair Jerome Powell emphasized signs of labor market weakening in remarks at a Philadelphia event earlier Tuesday. The Fed's next policy meeting is scheduled for October 28-29 in Washington.

When asked about the interest rate outlook during a Q&A session after her speech, Collins reiterated that policy has no preset path, and she could envision a scenario where after another modest easing, officials would then pause.

"Another modest easing, perhaps another 25 basis points, might be appropriate, but I don't think going much further would be helpful," Collins said. "Having made an adjustment in September, if we make one more adjustment, I could also imagine a scenario where we then hold steady for a period of time."