Rates Should Be Lower

[Redator]

Yesterday, Susan Collins, President of the Federal Reserve Bank of Boston, said that the U.S. central bank should continue lowering interest rates this year to support the labor market — while keeping them high enough to restrain inflation.

"Given that inflation risks have become somewhat more contained and the risks to employment have increased, it seems reasonable to continue normalizing policy this year to support the labor market," Collins said Tuesday in remarks prepared for an event at the Federal Reserve Bank of Boston.

Her statement came amid ongoing debates about the future of the Fed's monetary policy and its impact on the economy. Collins' speech highlights the complexity of the task facing the central bank: balancing the need to stimulate the labor market with the need to curb inflation, which, despite some decline, remains above target. Her proposal for a gradual reduction in rates — while keeping them at a relatively high level — represents a compromise approach aimed at minimizing risks to both objectives.

However, opinions among economists and experts about the Fed's optimal strategy differ. Some argue that the central bank should cut rates more aggressively to support economic growth, even at the cost of temporarily higher inflation. Others, conversely, favor a more cautious approach, warning that cutting rates too quickly could undermine efforts to stabilize prices.

"Even with some additional easing, monetary policy will remain moderately restrictive, which will help ensure that inflation resumes its decline once tariff effects work their way through the economy," she said.

Investors now expect that the Fed leadership will lower rates at the meeting later this month — a move Fed Chair Jerome Powell also clearly signaled yesterday. This would mark the second rate cut of the year, following the September decision to lower the key rate by a quarter point to the target range of 4.00–4.25%.

Collins noted that it is difficult to determine to what extent the recent decline in hiring reflects weaker demand for labor versus a reduced supply caused by a sharp slowdown in immigration. According to her, the monthly job growth needed to maintain a stable unemployment rate could soon fall to just 40,000, compared with roughly 80,000 before the pandemic. The Boston Fed chief also said she expects a relatively modest increase in the unemployment rate this year and in early 2026.

Collins was also asked about her outlook on interest rates, to which she replied that policy does not follow a preset path and that she could envision a scenario in which officials keep rates unchanged after another round of easing in October — particularly amid the escalation of a new U.S.-China trade conflict. "A small additional easing of 25 basis points could be appropriate, but I don't think we should get ahead of ourselves," Collins said.

The dollar reacted to all these comments with a solid drop against a range of risk assets.

As for the current EUR/USD technical picture, buyers now need to think about breaking above 1.1630. Only then can they target a test of 1.1660. From there, they could climb to 1.1690, though doing so without support from major players will be quite difficult. The most distant target is the 1.1715 high. If the trading instrument falls toward 1.1600, I expect some serious action from large buyers. If none appear, it would be wise to wait for an update of the 1.1570 low or open long positions from 1.1545.

As for GBP/USD, pound buyers need to break the nearest resistance at 1.3360. Only then can they aim for 1.3390, above which it will be difficult to advance. The most distant target will be the 1.3425 level. If the pair declines, the bears will try to regain control around 1.3330. If successful, a breakout of this range would deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3290 low, with the potential to reach 1.3250.

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