C. Peter McColough Series on International Economics With Susan M. Collins

The head of the Federal Reserve Bank of Boston discusses the U.S. economic outlook and monetary policy.

MODY: (Off mic)—today’s Council on Foreign Relations meeting with Susan Collins, president and chief executive of the Federal Reserve Bank of Boston. This meeting is part of the C. Peter McColough Series on International Economics. My name is Seema Mody, technology and global affairs correspondent at CNBC, and I will be presiding over today’s discussion.

We are joined today by CFR members attending in person in New York and over 200 members on Zoom right now. Thank you all for joining.

And it is my pleasure to introduce Susan Collins, president and chief executive officer of the Federal Reserve Bank of Boston—one of twelve regional reserve banks in the Federal Reserve System. Susan participates on the Federal Open Market Committee, the monetary policymaking body of the United States. Since taking office in 2022, Susan has overseen all the bank’s activities including economic research and analysis, banking supervision, and financial stability efforts. She is also on the board of the Peterson Institute for International Economics and the National Bureau of Economic Research.

President Collins. (Applause.)

COLLINS: Thank you very much for that kind introduction. I appreciate it. And I’m just delighted to be here this morning with all of you. You know, I have to say, it’s a bit of a homecoming for me. I’m a long-time member of the Council on Foreign Relations, and I also always enjoy coming back to New York. It’s where I grew up, and so a little bit of a homecoming.

So, a lot to talk about. Why don’t I jump right in? And I’m going to start, as I always do, by noting that my comments today are my own perspectives. I don’t speak for any of my colleagues at the Federal Reserve Board of Governors or at the other reserve banks. In my opening comments, I’d like to refer to some charts just to help illustrate how I view economic conditions, my view of the outlook, and also my assessment of appropriate policy. And that’s really rooted in my analysis of a wide range of different types of data. And I think that’s very important. It’s always important, of course, but if anything it’s even more so in times when there’s a lot of change and in times of scrutiny. And so I want to kind of clearly explain, as a policymaker, how I’m analyzing and interpreting the data.

So, turning to the data—and, you know, I’ll put up my first chart in just a moment—economic growth remains resilient. But the labor market has softened and inflation has been above target for more than four years. Although it’s well down from the earlier peaks, it’s picked up recently. So a context with softening labor market combined with inflationary pressures, that’s a challenging one for monetary policymakers. And at the September meeting of the Federal Open Market Committee, or the FOMC, I supported the twenty-five basis point policy rate reduction. In my view, a bit of easing was appropriate to address the recent shift in the balance of risks to our inflation and our employment mandate. And, obviously, I’ll talk a little bit more about that. But I do continue to see a modestly restrictive policy stance as appropriate as we, as monetary policymakers, work to restore price stability while limiting the risks of further labor market weakening.

So my first slide shows two key labor market indicators. First, Figure 1A, on the left, shows job growth. And that’s declined significantly in recent months. Hiring is way down from the exceptionally tight post-pandemic labor market. And it’s notably below the pre-pandemic pace. This slowdown partly reflects reductions in labor supply, in particular related to immigration restrictions. But it also reflects reductions in labor demand. And that’s evidenced, for example, by something I’m not showing here, which is the decline in job openings per unemployed worker.

However, as the second figure on this slide shows, the concurrent reductions in labor demand and supply have resulted in only a modest rise in the unemployment rate today. And also not shown, low initial unemployment insurance claims also indicate that while firms aren’t hiring much, they’re also not laying off a lot of workers. My baseline outlook doesn’t see the labor market softening much further, but there are risks. In particular, I see some increased risk that labor demand may fall significantly short of supply, leading to a more meaningful and unwelcome increase in the unemployment rate. So that’s a risk.

Anemic job gains in the midst of solid economic growth are a somewhat puzzling combination. And so, turning to my next slide, the current state of heightened uncertainty—which is quite in the news, continues to be—may explain why many firms are reticent to hire while also trying to get more output in goods and services from existing workers. And, as shown here in Figure 2, labor productivity continues to expand more rapidly than it did pre-pandemic, as firms are finding a range of ways to increase efficiencies. This was a priority coming out of the pandemic when it was really difficult to find workers. And that productivity-enhancing mindset seems to have continued. And it’s really ubiquitous when I’m out and about in the first district, most of New England—which is the Boston Fed’s district—and talking with CEOs of large, medium, and small businesses. And that mindset may now be tempering the hiring, despite solid economic growth.

So turning to recent price developments, in this slide Figure 3 shows the behavior of the three main components of core PCE inflation. Well, so in each of these panels the solid blue line shows price growth over twelve months while the red line shows the timelier, but also noisier—and you can see how volatile it is—three-month measure. As a benchmark, the dashed line in each of those panels shows the average inflation rates that prevailed over the period 2001 to 2007. And why do I pick that? Because that was a period when core PCE inflation averaged 2 percent. So it met our targets. So in panel A, core goods inflation has risen notably in recent months. And that’s a move that’s largely attributable to tariffs. In contrast, in the middle panel, housing inflation continues that slow and uneven decline. And inflation in the third panel for core non-housing services has returned actually to a range that’s consistent with the FOMC’s 2 percent target.

So as I look ahead, my baseline outlook continues to be relatively benign. I anticipate that hiring will pick up as firms adjust to this new tariff environment. And while inflation is likely to remain elevated into next year, I expect it’ll resume its gradual return to target over the medium term. That outlook is similar to the median forecast in the September SEP, which is the Summary of Economic Projections. But it’s a highly uncertain environment. And in that context I don’t rule out scenarios that could feature higher and more persistent inflation, could feature more adverse labor market developments, or both. But still, with less scope for inflationary pressures from the labor market, the upside inflation risks that I was concerned about a few months ago are more limited.

(Pause.)

Sorry, my apologies. So in this context, it may be appropriate to ease the policy rate a bit further this year. But we’ll have to wait to see the data. The data will have to show us appropriate policy.

So I’ll close then with a final slide that shows examples of my engagements across New England. This is something else that I and my colleagues at the Federal Reserve banks consider really essential to responsible policymaking—listening to people throughout the economy. I really value engaging with a wide range of people from different dimensions of our economy to hear how they’re experiencing challenges as well as opportunities, and how they’re anticipating the future. And I find that qualitative information a really valuable complement to the quantitative data and analysis that we do.

So there’s a lot to discuss, and I look forward to the conversation with Seema and then to your questions. Thank you very much. (Applause.)

MODY: That was a wonderful overview, President Collins, on how you see the U.S. economy. It’s a pleasure to sit down with you today.

COLLINS: A pleasure, absolutely.

MODY: So, as you mentioned, the Fed cut interest rates for the first time this year. There’s now this ongoing debate about whether the Fed can continue to cut rates when we’re not sure what the inflation picture will look like, given that tariffs haven’t fully fed into the economy. What would your response be to that? How do we understand whether that inflation risk is still there?

COLLINS: So let me respond by making a couple of points. And, again, I’m building on the things that I outlined. So I do think the inflation risks are there. And I think that we need to be focused on both sides of our mandate. And so we need to balance that with continued attention to labor market conditions as well. And so, you know, from my own standpoint, it’s not helpful to get ahead of what future policy decisions will be. The decision to ease back, dial the policy restrictiveness back a little bit at the most recent meeting, wasn’t announcing a preset path.

MODY: And you had mentioned just right now that you’ll be looking at the incoming data, as all Fed officials will, in the coming weeks to understand whether an October rate cut makes sense, a December rate cut makes sense. What specific data will you be looking at, especially as there’s been some concerns about the fragility in the jobs market right now?

COLLINS: Yeah. So let me say a little bit about some of the data, both on the inflation side and on the labor market side. And, you know, especially when things are very nuanced, I think it’s really important not to overemphasize any particular readings, but to really try to look holistically. And that includes both the statistical data but also some of the qualitative information that I mentioned before. And so you mentioned the labor side. Let me start there.

You know, and there, as I mentioned—so, there’s a lot of different indicators that I think make it quite clear that the labor market has softened. I am not—but at the same time, there are a number of indicators that indicate what you might call a kind of curious type of balance, right? And so I think it’s going to—you know, I almost think of, there’s a—like, a jigsaw puzzle. And we have different pieces to it. And we’re trying to understand what the picture is as it’s evolving. And so on the labor market side, I think it’s trying to understand how labor supply and labor demand are evolving, so the extent to which they will continue mitigating any impacts on unemployment from that standpoint.

And then on the inflation side, while I do expect tariffs to continue feeding through, I’m no longer expecting as large an impact as I had some months ago. And I think, you know, higher inflation and the productivity that I mentioned actually helps to perhaps limit what some of those increases would be. But when you have inflation that has been elevated for over four years, I think we want to be really mindful that some of the behavioral implications of that may not be well explained to us by looking historically, because we have had such a long period of relative price stability.

MODY: That’s interesting. What we learned from the last Fed meeting last week was that there was quite a bit of dissent. And I’m wondering what you think that tells us about the Federal Reserve’s just broader outlook on the U.S. economy right now.

COLLINS: Yeah. So I think a range of views is really healthy. I think that dynamic, I think that debate is incredibly important. I learn a lot from talking and hearing, listening to my colleagues, both in the meetings but also between meetings. We—lots of acronyms—the IMP, the intermeeting period. And, you know, we’re engaging with each other. We are out talking about our analyses. Our teams are sharing information about the analysis that they’re doing. And so all of that, I think, helps to enhance and deepen what we’re seeing. And we do see things a bit differently. And you’re seeing that and hearing that from what different people are analyzing.

So, from my perspective, my concern about the risks on the inflation side are very much there. But they have come down a bit compared to a bit—you know, some months ago. But at the same time, my concerns on the labor market side, potential fragility there, have increased a bit. And it was that shift in the balance that, from my perspective, made it appropriate to dial policy back. But with inflation still elevated, expected to remain perhaps over 3 percent into early 2026 before declining as the tariffs in my baseline outlook dissipate through the economy, and not coming back until perhaps 2028 all the way down to 2 percent, that’s an environment in which I think continuing a modestly or mildly restrictive policy stance is appropriate.

MODY: So this is just the new normal then? That, as Americans, we have already gotten used to it, but the idea that inflation staying relatively high or above the mandate makes sense? That’s just what we should remain used to?

COLLINS: Well, I am committed to restoring the normality of price stability. And we’ve seen that 2 percent inflation is really consistent with that. You know, I really take to heart the idea that, you know, price stability, low, stable inflation, no one should be thinking about it. Well, everyone’s still thinking about it. When I’m out and about in my district, one of the things I hear about in every conversation is price levels are high and things keep increasing. And it’s very top of mind to firms, to consumers, to everybody I talk to.

MODY: How are Fed officials thinking about the rise in geopolitics, and whether it’s Israel and Gaza, Russia-Ukraine, you know, purely from an economic lens how these events are impacting price stability, oil, other factors that feed into the Fed discussion?

COLLINS: So it’s a really—it’s certainly an important set of factors. Obviously, you know, our congressional mandate is focused on U.S. price stability and maximum employment. But the U.S. economy is obviously part of the global economy. And those linkages are—you know, occur in many, many different dimensions. And so, you know, we factor it into our models. The Boston Fed, like a number of the other reserve banks and certainly the board, has a group that focuses on international economic issues. We’re actually, in the Boston Fed, our annual economic conference, which we’ll hold in November, is going to focus on global economic issues and the U.S. economy.

And so, you know, a range of things—the production pipelines and supply considerations, which are really important. We saw that in the pandemic. We’ve seen the importance of supply linkages and impacts more recently. Tariffs factor into that. But also there are questions related to fragmentation and globalization. So there’s a range of things that we will be looking at, and we recognize the importance. The other thing I’d just mention briefly is, of course, our FOMC colleagues, especially at the board, are in touch with central bankers at countries around the world. And those relationships are valuable and important too.

MODY: Of course. Let’s dig in a little bit into New England and what you’re seeing there, because the economy overall, on average, is holding up better than the national average.

COLLINS: So, again, thanks for that question, because, you know, I do think really one of the strengths of the twelve reserve bank system is the grounding of each of the reserve banks in a region, enabling us to really understand, you know, at a kind of deeper level how things are evolving. I would say a lot of the things I hear are quite similar to what we see in the data. There’s some—you know, the aggregate data mask a wide variation in economic conditions, with some being much stronger. I hear areas where it’s hard to hire in certain kinds of skilled level—skilled workers, for example. But then other areas where people are more concerned about it taking longer to find a job.

Housing. I hear a lot about the uncertainty challenges as—so that the high cost of housing and also childcare and affordability issues, uncertainty challenges which are things that I mentioned. But then also how firms are responding in terms of addressing investments in productivity and a range of things as well. So that really does complement how I look at the aggregate data, recognizing that our charge is for national policy. But that can be deepened and informed by understanding what happens more broadly. And each of our Fed’s portfolios really focuses on trying to support economic vibrancy in our districts.

MODY: So you and I were discussing the impact of artificial intelligence on the jobs market. You have some real-time examples of how it’s impacting certain companies in the broader Boston area. But I’m wondering what you made of the comments from Walmart’s CEO Doug McMillon the last few days, the world’s largest retailer, saying that AI will certainly impact the company’s head count, especially at a time where they’re still trying to grow. And it joins a number of other CEOs—echoes number of comments from other CEOs who have said something similar, that AI will impact our workforce.

COLLINS: So let me—let me make one broader comment and then say a bit more about AI. And the broader comment is that when I mentioned a couple of times and showed a slide related to productivity growth, which has been, you know, quite robust in the U.S. relative to pre-pandemic, and also relative to a number of other countries, that in part reflects AI. It’s perhaps early days related to the AI investments. It also reflects a wide range of other kinds of investments as well. So I want to be clear that, you know, while I’ll talk more about AI, that’s not the only productivity-enhancing approach and set of investments that firms are engaging in with, you know, very positive results that we’ve seen so far.

So, you know, as far as AI goes I do think that we should think of it as a general-purpose technology, which means that it, you know, can have broad-based impacts. That it’s something that can improve over time. And that it can be utilized in a variety of different contexts, right? So I do think it meets those. And so it will be disruptive over time in a variety of ways. But I think it’s hard to get too far out ahead of knowing exactly how that will unfold and what it looks like.

I would expect that there are some—you know, and what I hear in my district, to your question, is examples of firms that are experimenting, exploring. I’m hearing much more discussion of things firms are trying than even six or nine months ago, when it was more on the horizon. But it is still early days. And I’m hearing examples of ways that firms are using it to complement their existing employees, helping them not only be more productive but perhaps do less of the—do less of the things that, you know, are the most mundane tasks and things that you could have done in other ways. But then in some cases, where it’s either more difficult to hire or it, you know, is relatively easy, there could be some substitutions. It’s early days to tell how that will happen.

But I would also say that if we look at prior technologies of general-purpose type, they have often created opportunities that were very hard to see early on. And so I think that we can’t get too far out ahead of exactly how things will unfold. At the same time, it’s moving faster than, for example, electricity adoption, or some of the earlier internet adoption. And so there are some things to really pay attention to. And there’s certainly some questions related to, you know, what kind of governance we have around it, and things like that. So I think—I welcome the attention. I think, again, it’s healthy that there’s a range of views of what the impacts will be. And I suspect that we will continue to learn a lot more about both the opportunities, but also some of the challenges, and ways that we might address them.

MODY: I get the sense from you that you still see it as early days. You know, the idea that the labor market could fundamentally change because of artificial intelligence, and then that changing how the Federal Reserve thinks about the dual mandate, we’re not there yet.

COLLINS: So what I would say is that the structure of work over time could change. I mean that, the things that people do now are actually quite different from the things that they did before some of the other general-purpose technologies were adopted. It’s possible that there will be even larger changes this time around. I think it’s too hard to tell. And we will certainly continue to pay attention and focus. But because the structure changes doesn’t necessarily tell you what the implications and the dynamics would be in terms of demand for labor overall. And the Fed’s focus for maximum employment is about the overall opportunities to work, not about the structure of those opportunities. They certainly interact, and that’s something that we need to focus on and pay attention to. But our mandate is about the kind of overall employment and opportunities for people in our country.

MODY: Let’s talk Fed independence. Curious what the feeling inside the Fed is right now with President Trump. He’s been outspoken on his desire to see rates move lower. He also posted over the weekend a cartoon depicting Fed Chair Jerome Powell and the word(s) “I’m fired.” What’s your reaction and your sense as to how this all feeds into the Fed?

COLLINS: Well, I mean, clearly there’s a lot of news. There’s a lot of attention to the Federal Reserve in general, and Fed independence. I’ll just say a couple of things about that. I’ve said before, I continue to see independence of the Federal Reserve as really essential for us being able to carry through the mandate that we have from Congress. There’s a lot of research that really shows that, you know, independent central banks that can take a longer-term view, which sometimes means making difficult decisions not the short-term ones, that those are the decisions that best foster stable prices and growth over time. And so I continue to focus on that mission.

I’m aware of the importance. And, if anything, it feels like it’s become even more important. And so taking opportunities like this one to talk about what goes into our decisions. The discussion around the FOMC table in September was just as data-focused and analytics-focused as it’s been throughout my time at the FOMC table, when I joined three years ago. And I would expect that that will continue. Certainly that is 100 percent my own, you know, focus and attention. And it’s important for us to follow through on those commitments.

MODY: But if central bank independence becomes politically unsustainable, should a viable alternative be assessed?

COLLINS: Well, so our mandate comes from Congress. And, you know, Congress, of course, would have decisions to make changes on that. But, you know, that mandate, again, continues to be really important. You know, one thing that I would add, that I should have added before, that independence certainly comes with accountability. And so making sure that, as we do, we follow through with the many ways in which the Fed is accountable also, I think, is essential. And is something that, you know, should be recognized and discussed as well. So these are important topics. And I think they certainly warrant attention and are worth having questions asked. But I would just reaffirm the focus on the data and on the commitments that we’ve been—to the job we’ve been given.

MODY: Makes sense. Sticking with Washington, I would love to get your thoughts on President Trump’s bitcoin reserve plan, and if that has fueled any debate inside the Fed around adopting this currency at some point.

COLLINS: Yeah. So, you know, obviously there’s a lot of attention to a range of different things at the Fed, including innovations. And so bitcoin, stablecoin, tokenization, there are a number of different innovations in financial markets that are examined and studied. So, you know, I would certainly say that those innovations can offer opportunities. But they also, you know, for regulators and others, create a range of potential risks. And so we are charged as well with understanding risks to financial stability and trying to be focused on those as well. So, you know, I would certainly say that as the financial landscape and various kinds of innovations evolve, our, you know, analysis and thinking about them certainly evolves as well.

MODY: It’s interesting to see just how the idea around digital currencies has evolved, right? Even ten years ago, I know when I started reporting on this topic, it was wild to even think that we’d be talking about it in a serious manner. And here we are, a very different scenario. Deutsche Bank recently coming out saying that bitcoin could sit alongside gold on the central bank balance sheet in the next five years. Do you think that’s realistic?

COLLINS: Well, I’m certainly not speaking for other countries. And, you know, what I would say, you know, as far as the Federal Reserve is, you know, we will continue to assess things thoughtfully, you know, in terms of digital currencies. Of course, you know, we don’t have a central bank digital currency. That would be a decision for Congress to make. And, you know, understanding how some of those developments unfold is something that we will certainly stay on top of.

MODY: You had mentioned the housing market in your opening remarks. And there’s been some debate about, you know, the health of the housing market. The shortage of supply, but at the same time so many families, younger families specifically, feeling priced out. And how that situation just hasn’t changed in recent years. What are you seeing from your lens? And what’s the discussion right now at the Fed around the health of the housing market?

COLLINS: So there’s a lot of attention to housing from a variety of different standpoints. I mean, housing is obviously incredibly important to individuals and households. It’s also important to communities. And, you know, and housing, therefore, if there are challenges related to access and affordability of housing, that can impact people’s ability to participate in the economy. And so it does relate to our mandate. And it’s something that we certainly think about. And the challenges have really increased. That’s a longstanding problem. It had to do with what happened with supply over a long time period. There are a number of metrics that really demonstrate the challenge. If you look at average housing prices relative to median incomes, for example, you can see how that challenge is. And then, of course, that’s an average. And it masks a number of folks who are even more challenged in that context.

I would say, if you look at housing prices, they have increased substantially over time in this country. Actually, increased even faster in New England. And so it’s very much something that I’m quite focused on and that I hear about also in every conversation that I have in every community. You know, I think one of the—it’s going to take all of us working together. And a lot of that work is not the Fed’s kind of primary lane. So, yes, it’s true that with our kind of modestly restrictive federal funds rate, that does influence financial conditions. But the overall rates are influenced—the longer-term rates—by many, many other dynamics as well. And so we certainly don’t control those rates directly.

And from my standpoint, us restoring price stability and an economy with growth and strong employment, that’s the best context for restoring the kind of stable, you know, housing environment that provides accessible, affordable housing more broadly. So that takes all of us working together. And that’s one of the key places where I see the Fed as having a role. And it’s a medium- to long-term role.

MODY: I was looking at the recent data on migration out of New England, even just New York and Boston. I mean, it’s still happening, to Florida and other places where there’s more tax incentives. Do you think that continues if affordability becomes—continues to be an issue for American families?

COLLINS: So it is a dynamic, certainly, you know, housing prices. You know, during the pandemic it was interesting to see that there was actually a migration in to many parts of New England. And I, you know, like to say people saw just how lovely many parts of the region are. But that actually exacerbated some of the housing challenges because it pushed up prices. And many of those are homes that might be second homes, and so actually can exacerbate some of the challenges. And so, you know, I hear a lot about this as a barrier to being able to hire. And so it’s not just for lower-priced housing, but I hear examples of hospitals that have offered a position to a physician who’s come, but they can’t find housing for their families and so they don’t stay. And so it is certainly an issue and factors into people’s decisions about whether to move into the region or whether to stay in the region. And so it’s something that we think about, and many others think about, for all of those reasons as well.

MODY: I wouldn’t be a CNBC reporter without asking you a little bit about the stock market. Basically at all-time highs. And there’s been some talk from certain Fed officials about whether it’s overvalued or not. I know the Fed has a dual mandate, but how closely are you watching the equity market?

COLLINS: So financial markets are really important, right? They certainly factor into a range of dimensions of how we think about economic growth, to underlying fundamentals. And so on the one hand, the very strong equity markets helps to increase household wealth. And it’s part of the stronger consumption that we’ve been seeing recently. And it’s one of the things that plays into my view that economic growth is likely to continue to be resilient. But at the same time, there are concerns about, you know, is there a disconnect between some of the softening in labor markets that I mentioned and the strength in equity markets? So it’s certainly something that we’re watching. And, again, from a financial stability lens, and more broadly. So we watch all of it. We look at all of it.

MODY: All right. I think we’re going to open up our session now for Q&A. So for our members in the room here, you can start thinking about what you would like to ask President Collins. A reminder that this meeting is on the record. And we also welcome questions from our members online as well. Yes, please. Right here. You can just wait for the mic and introduce yourself, please.

Q: Fred Hochberg. I was formerly chair of the Ex-Im Bank.

The BLS had some real data surprises for our economy this time. What do we do to get better data? I mean, we’ve been relying on this for a long time. That was a big adjustment, and it obviously factors in, in a very significant way, in the actions of the Fed. So where’s the—what’s the plan to go forward on that and make some changes or improvements there?

COLLINS: Yeah. So the BLS data is, you know, really essential for the work that we do. And so, you know, we try to understand how it evolves. So, to your point, there have been some quite large adjustments and revisions to those data. And, you know, continued, you know, assessment of the data, understanding ways to enhance and strengthen it over time is something that is a BLS job, and is something that takes resources. So, you know, it’s certainly not something that the Federal Reserve does, although we rely on the numbers. The BLS data, you know, those monthly jobs data in particular—and we’re expecting on Friday the data from September—they do get revised over time because the surveys that go out, the initial data that is first reported is based on how many firms respond to that initial survey.

And what they’ve been seeing is that over time, especially in the current environment with lots of uncertainties and changes, that it is taking some firms, perhaps more firms, more time to respond. And so in that second month, you’re getting more of the responses from, again, the preliminary data that was already reported. And then in the third month, you have a more complete picture. And so that’s why the changes have been so big, because it seems that there’s been a bit more kind of selection in terms of who reports first. And it’s hard to tell that in advance, right? And so understanding how the data are actually collected and the kind of range of ways. But it continues to be, I think, the most informative, reliable information about what’s happening in labor markets. And it’s really essential for the work that we do.

MODY: Yes, right here.

Q: Thank you. Earl Carr, representing CJPA Global Advisors. Great to see you, Seema. And thanks for moderating a great presentation.

Susan, you talked about—during your presentation you talked about tariffs. One of the stated goals of the tariffs was to help reshore more manufacturing back to the United States from companies. Are you seeing that data being played out currently?

COLLINS: So it’s still early days, related to how tariffs—how tariffs play out. So I spoke a little bit about how we’re seeing the tariffs impacting especially goods prices. And I think that will take some more time before it fully plays through the system. And I’ll just mention quickly that the Boston Fed has some very recent papers that talk a little bit more about why it might—that might take some time. But as far as production, that requires different types of investments. And one of the things that we see in some of the data, and that I certainly hear when I talk to CEOs around my district, is with the stop and go, the changes, some of the uncertainty, some of them more significant investments, whether it would be related to potentially reshoring or related to other things that might—firms might be thinking about, those are more likely to be delayed. So it may be quite early to tell how much change there might be.

What I am hearing is, you know, firms are certainly trying to understand what the options are and what some of the changes might be. And so, for example, when we look at the amounts of tariffs that have been collected at the border, there actually suggests a lower effective tariff rate than the actual effective tariff rate because—we think, part of that is that firms are actually adjusting which products are imported, where they’re importing them from. And so there have been some shifts in behavior related to tariffs. We’ll have to see whether that continues, whether there will be greater shifts, and so there’ll be more production in different places, including in the U.S. So for those kinds of significant investments there’s some changes that you can make over, you know, a couple months’ time period. There are other changes that would take a lot longer.

And one of the things that I’ll just note in the paper that was just released on the Boston Fed webpage, which is based on surveys of small—quarterly survey of small and medium businesses. One of the key things that it shows is that a significant number of firms have been evolving in their view of how long lasting the tariffs would be. And so, you know, earlier waves of the survey at the beginning of the year, many more firms were not sure. They did not expect that tariffs would be long lasting, which would, of course, make it less likely that you’d make more significant investments. And that has gone up. And as it’s gone up, their expectation of how much might get passed through has gone up. And I would expect that their expectation of some of the other potential impacts would also tend to increase.

So it’s still early days. So one other thing I would say is that some work by my Boston Fed team for the tariff increases in 2018—which, of course, were much smaller; they unfolded over a much shorter time period—it took fully five months before you saw the really peak impact of that. And so it’s hard to know when you start counting the increased tariffs that we’ve had recently, and it’s—there’s much more kind of uncertainty that’s been associated with them. Some of that’s been resolved, but certainly not all of it. And so I think that the idea that this—the impacts are going to unfold over time is really very much the way that I think about it. And so I think it’s hard to tell exactly how those things will play out at this stage. It’s something to continue watching carefully.

MODY: So a fluid situation.

COLLINS: It is a fluid situation.

MODY: To understand tariff policy. Yes, right here.

Q: Thank you. Glenn Creamer, Providence Equity. Thank you, Susan, for being here.

I’m curious on two topics. How you think about—you and your Fed colleagues think about the national debt, which has exploded in the last decade or so, and the impact of that long term on interest rates, and the economy, and so forth. And then also the demographic picture. You know, population growth is an input to economic growth. And if we have not a growing population, maybe even a declining population, how do you think about those two sort of macro issues when you’re setting policy and thinking about the long term? Thank you.

COLLINS: Yeah, thank you. So, let me—so let me again say, of course, I speak for myself, right? So, you know. But these are obviously topics that are, you know, part of the mix of what we think about when we talk about—you know, our focus, of course, is monetary policy, not fiscal policy. But of course, the levels of debt and fiscal policy filter in to how we understand economic conditions and also to assessments of the outlook, what the trajectory for the economy would be. And certainly, higher levels of debt can influence interest rates, the term structure of interest rates, and a variety of different things. And so we continue to factor those things in as we develop our assessments of current conditions and what the trajectories are. And not surprisingly, there’s going to be a bit of a range of views about how to weight those things.

You know, certainly demographic factors are important. I will note that while, you know, the country, of course, is aging, New England is actually aging faster than the rest of the country. And so it’s also one of the things that we spend—I spend time talking with people across our district. And there are a range of different dimensions to that. So over time, as—you know, as a country ages, that’s certainly going to have implications for labor force participation and labor supply growth. That is one of the—labor supply and labor productivity are key dimensions to economic growth more broadly, and the extent to which we’re growing the pie that is available to be shared in a variety of different ways. You know, I think that there’s a lot of kind of interesting work in that world.

So part of it relates to labor supply. You know, I think that we have seen different examples—and I’ve had conversations with some in my district about the extent to which there are, you know, broader opportunities to bring people who may still be very healthy later in their lives back into the workforce in different ways. I mean, I saw some research some years ago that really highlighted that groups that include more seasoned workers may actually be somewhat more productive. And so there may be some real opportunities. And, you know, perhaps New England can help to show some of those examples in ways that might be helpful more broadly. And then, of course, you know, the broader demographics are not only important for our communities and for the labor supply more broadly, but, as I mentioned, feed into overall economic growth.. So, you know, we could spend a lot of time on each of those important topics.

MODY: That’s really interesting, that integrating a workforce that is seen as aged out but maybe they can—they add value in different ways, and assessing their impact.

COLLINS: Absolutely.

MODY: We are going to go to a question online.

OPERATOR: We’ll take the next question from Michael Froman. (Laughter.)

Q: Hi, Susan. Thank you so much for being there. Sorry I’m not there in person. And really appreciate your presentation and your comments here.

Not surprisingly, I’d love to go back to your comments on tariffs for a moment. Are you seeing any data about the loss of jobs in downstream industries from products like steel or aluminum that are subject to tariffs, as we saw back in the 2018 to 2020 period?

COLLINS: So, first of all, hi, Michael. Nice to get a question from you. And just delighted to be here this morning.

So, you know, as I mentioned before, I do think it’s a bit early to see what some of the impacts on—there’s a lot of things that are going on in labor markets right now, which make it challenging to try to parse out what the impacts of different particular things would be. And so that’s something to look at, unpacking what happens across different industries. We certainly do have work that the Boston Fed has done that really looks carefully at all of the input-output connections, the extent to which other sectors do feed into the production of a range of different kinds of products. And we’ve been more focused on how that might impact how the tariffs affect prices more broadly, recognizing it’s not just prices of those goods that are imported directly but also the many goods that use imported intermediates. In Boston we haven’t looked as closely at the labor effects, but certainly there is work underway. And I agree that that is an interesting and important thing to explore as well.

MODY: Yes.

Q: Thank you, President Collins. Ben Silk, former Boston Fed.

The term you used, “mildly restrictive” or “moderately restrictive,” that you and most of the committee are using now, suggest something less than a hundred basis points between the current rate level and the I-star (ph) in the SEP. How would you think about evaluating when rates are no longer mildly or moderately restrictive, but rather at something more neutral, if you’ll allow me to use that term?

COLLINS: Yeah. So thank you for the question.

You know, I do think that in real time—in other words, in the timeframe that we have to make policy decisions—it, for me, really needs to be based on my understanding of economic conditions and what the trajectory looks like. I do think underneath that, thinking about what an underlying I-star (ph), or the real interest rate, R-star, might look like is valuable. I think conceptually it’s really helpful. But you know, I think there are examples where that has been shown not to be so helpful for immediate decisions.

So, for example, if you go back to 2022, when we were expeditiously increasing interest rates because inflation was so high, it was widely believed that that was really going to trigger a recession because of where people thought R-star was and what they thought the policy rate trajectory was likely to be. And of course, that didn’t happen because during that time period the actual conditions unfolded somewhat differently.

And so I think conceptually about the stars are helpful, but in terms of how I think about making policy decisions in real time really has much more to do with conditions and the trajectory. And so from that standpoint, as I explained, I did think that it was appropriate to dial things back a bit. It may be appropriate later this year to dial things further. But I don’t want to get out ahead of that, because I think we’re in a context where we really are balancing that risk on the labor market side, which, as I explained, I think, has gone up a bit. But on the inflation side, we’re not out of the woods. So while I am not, from my baseline, expecting inflation to rise to the higher levels that I had thought it might a couple of months ago, again, this period we’ve come out of, with elevated inflation for so long—and, Seema, you actually said, is this the new normal—that could be concerning because that’s a context in which things could get—and it’s not what I’m seeing in expectations, long-term expectations data. I just want to be clear about that. But that could become entrenched. And that could have implications for inflation getting stuck too far above that 2 percent inflation.

So it’s—I’m going to be looking for information on both sides of the mandate in terms of determining does dialing it back make a little—a little bit make sense, given the balance of risks? Or does it make sense to maintain the kind of current level of restrictiveness for a bit longer? If you look at the SEP, the median does have, you know, what looks like some degree of restrictiveness into even 2027. So there’s a range of views. That’s healthy. There will be an active debate on this topic. And I think we’re already seeing some of that.

MODY: This balancing act is just—it’s real time. It’s happening every week.

Next question. Yes, right here.

Q: Niso Abauf, Pace University.

I was wondering if you could elaborate on some of these relatively new terms. For example, central bank digital currency. Don’t we already have digital currency? And if that is not what it is, is it tokenization? Is it stablecoin? And if it is something like stablecoin, will the commercial banks be disintermediated? Thank you.

COLLINS: So just to be—and there are a lot of new terms out there. That is totally—that’s totally correct. But the Fed has actually had conferences, the Boston Fed has helped to cohost them, on stablecoin and on some of these other dimensions, as I mentioned briefly. So and just to reiterate, you know, so we would—Congress would need to authorize a central bank digital currency, which would be something that was issued by the—you know, by the Federal Reserve. And so we don’t have that. We are not intending or planning to have that. But there’s quite a bit of work understanding how, for example, the instant payments rails might be similar or different from what some of the opportunities from different types of digital currencies, such as tokenizing assets, might imply. And there’s a range of views in terms of the extent to which that might be similar or different.

So in particular—I’m introducing a new term here—FedNow, which is the name of the instant payments rail that the Federal Reserve system introduced in summer of 2023 to provide 24/7, 365-days-a-year instant payments for banks that adopt and are part of the system. And so that is a—you know, an infrastructure that enables banks to provide that kind of service for their customers. And that, many think, could perform some of the kinds of services to support customers that some of these other types of innovations could as well. So in particular both the instant payments, the verification that the payment has gone through—you know, so a number of those different kinds of structures. But again, that works through the banks that would have adopted the service. It’s not something that would go directly through the—or that goes directly through the Federal Reserve.

There’s something like 1,400 or so of the financial institutions in the U.S. that have already adopted and are beginning to provide those services using FedNow for their customers. So unfolding very rapidly. And there’s a lot that’s underway. And, you know, of course, the GENIUS Act that was passed recently pertains to stablecoin. And those are dimensions that we and other regulators will continue to monitor carefully. And you know, so that work is underway.

MODY: Fascinating times. Yes.

Q: Thank you. Jeff Kaplan with Ares Management.

Unless something has changed in the last hour I think we’re at a looming government shutdown. And I’m curious what kind of challenges this can introduce to you in the committee, and maybe in particular with respect to data availability. My understanding is these reports can be delayed sort of a prolonged period. What other types of data sources can you and your colleagues look at to inform decision making, in particular, if there are ever more prolonged shutdowns?

COLLINS: Yeah. So, a government shutdown has—in the past has delayed key data, such as the BLS data that we are expecting on Friday, the jobs data, which is, you know, particularly valuable given some of the topics we were talking about. And it really—in my view, it really is kind of the—so there are challenges with it. Things are evolving. There are, you know, ways that those data can be improved. But it still really is the gold standard. So there are a range of other kinds of data we also look at to try to understand labor markets. And we’re exploring other ways of doing that. You know, but many of those are actually kind of grounded from the BLS data. And so not having the BLS data, you know, over time continues to become problematic. So certainly data access is one of the things that would impact the Federal Reserve in the event of a government shutdown.

You know, I would also say that it increases difficulties for firms, consumers, many workers, and also enhances or increases the uncertainty. And one of the things we’ve been talking about is some of the implications of uncertainty for firms’ decisions related to investment, related to hiring, related to other things as well. So there’s a range of things that that could—that could be impacted. And, again, you know, we’ll be monitoring things as they unfold. Fiscal policy, obviously, is not the Fed’s purview, but certainly we would—the work we do would be impacted. You know, one thing I should say is that the Federal Reserve operations would continue. So those would continue as usual if the government were to shut down.

MODY: It’s a good reminder. We’ll go to a question online.

OPERATOR: We’ll take the next question from Steven Koltai.

Q: Thank you. I’m Steven Koltai at the MIT Center for International Studies.

Are you seeing any effect of the Trump administration’s aggressive deportations and reduced immigration on the labor market and/or the macroeconomic data that you consider?

COLLINS: Yeah. So thank you for the question about immigration. And, you know, the immigration restrictions are—you know, I do see that they are one of the reasons—I mentioned—let me back up for a moment. I mentioned earlier that we clearly have seen a softening in the labor market. And that that reflects both a slowdown in the growth of labor demand, but also in the growth of labor supply. And the immigration restrictions are very likely a clear part—a key part of that. But having said that, and we’ve tried to do some deeper dives, it’s actually hard with the data available so far to unpack some of the different dimensions, right? So we know that in 2022 to 2024 very, you know, rapid growth in immigration, increased U.S. population, led to increased labor supply. And that actually helped us to be able to bring inflation down while economic growth continued.

More recently, you know that fragility of the slower labor supply growth—is something that I talked about earlier. But at the same time, you know, the while cross border flows, you know, are certainly close to zero, perhaps. But that doesn’t necessarily tell us what the implications for labor supply would be. There is often a delay between when people enter the country and when they apply for permits. And permit growth for work permits in the first half of the year was actually, you know, quite robust. And then, of course, some, you know, labor supply—some people work without getting a permit, obviously.

There’s a range of views about whether the increase in deportations, which has increased but is small relative to those bigger immigration numbers, such as the ones that I just gave, how that will impact what the net flows out of the country are, with a range of views. With greater restriction it could be that there are some who are less likely to leave because it’s harder to get back in, or there are some who may choose to leave. There also are implications in terms of whether people actually are working and active in economic, you know, ways, whether it’s shopping or going to work.

So there’s a range of different things. And it’s very hard with the data that we have so far to really be able to tease those things out. But I do think that part of the softening in labor markets, the reason why we’ve not so far seen much increase in unemployment—even though labor demand has been so much lower, as I mentioned—does relate to the implications of those immigration restrictions.

MODY: There’s now a potential restriction in H-1Bs, being able to give those visas out to tech professionals. Any preliminary views on how that could impact the tech sector or even biotech, where there’s so many companies based in Boston?

COLLINS: There are many different companies in Boston and elsewhere that certainly have actively used H-1B visas. And, you know, we’ll have to see how that plays out. I’ve been focused more on some of the—in the short run. Some of these are new developments, and so figuring out what some of those implications would be, you know, and the ongoing work to try to understand that.

MODY: Wide-ranging discussion, President Collins. We really appreciate your time at a critical time as we try to understand the trajectory of the U.S. economy. Thank you so much for your time. (Laughter.)

COLLINS: A real pleasure to be here. Thank you.

(END)

This is an uncorrected transcript.