Fed Focuses on Curbing Inflation Rather Than Lowering Rates, Even as Economy Shows Strength

Susan Collins, President of the Federal Reserve Bank of Boston, has expressed doubts about the possibility of a rate reduction at the Fed’s December meeting, pointing to persistent inflation and a robust economy as key reasons. In a recent interview with CNBC, Collins stated that “maintaining a restrictive stance is the right approach at this time” due to current inflation trends, and she urged caution when considering further reductions in borrowing costs

. Her comments reflect the general reluctance within the Federal Open Market Committee (FOMC), where most members did not support easing policy in December.

The Fed’s rate cut in October, its second consecutive reduction, was intended to support a weakening job market while continuing efforts to bring down inflation, which has stayed above the 2% goal for over four years

. Still, there is division among policymakers. The minutes from the October meeting pointed out that progress on inflation had “stalled,” and that cutting rates could threaten the Fed’s reputation for controlling price growth . Fed Governor Stephen Miran argued for a deeper cut, while Kansas City Fed President Jeff Schmid was against any reduction, resulting in the first split dissent since 2019 .

The Fed’s policy decisions have also been complicated by the government shutdown, which postponed the release of the November jobs report until December 16—just ahead of the December meeting

. The absence of this important data has increased uncertainty, with officials saying it is harder to gauge the economy’s health. In her interview, Collins mentioned that the mixed hiring numbers for September and the ongoing strength of the economy made her “reluctant” to support further action .

At the same time, the Fed’s overall policy landscape is shifting. The central bank has recently , which were designed to shrink its $6.6 trillion balance sheet by not replacing maturing bonds purchased during the pandemic.

Market responses to this uncertainty have varied. Analysts at Jefferies estimate that deregulation in the U.S. banking sector could free up $2.6 trillion in capital for major banks, potentially increasing lending and profits

. Yet, investors remain cautious. Shares of Compass Diversified jumped 13.3% after John Williams, President of the New York Fed, suggested that rate cuts could come “soon,” but overall, the market is still wary of inflation risks .

Looking forward, the Fed’s meeting on December 9-10 is expected to draw significant attention. While some, such as Williams, have indicated a willingness to consider easing, most policymakers seem inclined to keep rates steady until there is clearer evidence that inflation is slowing

. Collins’ position—based on her view that the economy can handle current rates—mirrors a broader group within the Fed that favors prioritizing price stability over aggressive stimulus measures .