Boston Fed President Susan Collins says the central bank would benefit from paying attention to American consumers’ bad feelings about a good economy.
In a wide-ranging conversation with MarketWatch, Collins talked about the stubborn impact of inflation, the often uneven picture of a healthy economy and the value of listening to frustrated American consumers as policy makers at the Fed work to stabilize the economy.
‘I think it can be true that a lot of parts of our economy are doing extremely well, and that some people are really struggling and there’s a heightened level of anxiety and challenge.’ — Susan Collins, Federal Reserve Bank of Boston
“When people tell us what they’re experiencing and how they are being impacted by the economic environment, I think it’s important to take that seriously,” Collins told MarketWatch. “I think it can be true that a lot of parts of our economy are doing extremely well, and that some people are really struggling and there’s a heightened level of anxiety and challenge.”
Measures of consumer and voter sentiment have shown lingering pessimism surrounding the economy, despite months of relatively positive economic data showing low unemployment and growing wages alongside a downward inflation trend. That’s befuddling economists, and complicating the political landscape ahead of November’s presidential election.
That gap can partially be explained by the elevated prices of many consumer goods, Collins said, and a general sense of uncertainty about the future in the wake of the pandemic.
The Federal Reserve has lifted interest rates to slow the pace of price increases across the economy. That’s worked, for the most part. But the actual prices of goods and services haven’t — and probably won’t — return to their levels before the onset of the coronavirus pandemic in early 2020.
Collins said it can take a while for consumers to adjust to that kind of shift, and some American households might simply still be reeling from the shock of the pandemic.
“Uncertain environments are very anxiety-producing,” she said. “I think part of what people are telling us is the toll that it takes to deal with that uncertainty.”
Collins said she’s been concerned about a scenario in which negativity and cynicism spread and more consumers and businesses tighten their purse strings pre-emptively, creating a self-fulfilling prophecy that could drag the economy downward.
“One of the things that I think is important to watch for is a dynamic that ends up being self-fulfilling, where it causes a number of other folks to pull back in ways that slow the economy because people are worried about everybody else,” she said.
That kind of cycle could be spurred by something like high-profile layoffs in a particular sector, she added.
The concerns Collins hears most frequently
Housing remains a big concern in her Fed district, Collins said.
“The most frequent thing I hear when I am talking to people across the first district in New England is the challenges related to housing,” she said.
Collins said she’s heard multiple stories from employers who lose out on new hires because those workers can’t find a place for their family to live in the area. Those kinds of challenges are showing up across income levels, she said.
What else is she keeping a close eye on? Extra savings that many households accumulated during the pandemic seem to have dissipated, but savings rates remain “really low,” Collins said. “That’s another area of uncertainty.”
The personal savings rate — the percentage of disposable income that people save — was 3.6% in February, the lowest level in over a decade.
Collins said that she’s a “realistic optimist” who acknowledges that, though the data show a healthy economy in the aggregate, there are still pockets of struggle.
‘I would say that, relative to the past, maybe we spend a bit more time talking about the qualitative information we hear.’ — Susan Collins
“I believe very strongly that while that may not be as important for monetary policy — which looks at the entire economy — that doesn’t mean [it shouldn’t] be a concern, in my view, for the Federal Reserve,” she said.
Qualitative research — like the kind found in the Fed’s Beige Book, a collection of anecdotal information from each of the central bank’s 12 districts — is becoming a more important part of the Fed’s understanding of the economy, she said.
“I would say that, relative to the past, maybe we spend a bit more time talking about the qualitative information we hear,” she said. “I think leaning into that more intentionally and expansively is something that I take seriously. Many of my colleagues take it seriously, as well.”
What about inflation and the job market?
Should the Fed consider adjusting its long-term inflation target rate of 2%? Collins warned that shifting that goal could seriously undermine the institution.
“One of the most important assets that the Federal Reserve has is its credibility,” she said. “That’s something that’s earned.”
‘We have very clearly seen that disinflation in the current context can occur with a very robust labor market.’ — Susan Collins
It’s been a bumpy road back toward that target rate since the pandemic, snarled global supply chains and other factors awakened long-dormant inflationary pressures. Inflation in March was a touch higher than economists had forecast, and remains well above the Fed’s goal, at 3.5%.
But Collins sees one silver lining. The job market, too, has reported hotter-than-expected numbers in recent months. But the labor market might not need to slow as much as prior experience would suggest, she said, in order for rates to come down.
“We have very clearly seen that disinflation in the current context can occur with a very robust labor market,” she said. “That makes me more optimistic that we can bring inflation down and continue that trajectory while the labor market remains healthy.”
Collins has been president of the Boston branch of the Federal Reserve since 2022. She is the first Black woman or woman of color to lead any of the 12 regional Fed banks.
