(Bloomberg) -- Federal Reserve Bank of Boston President Susan Collins signaled interest rates will likely need to be held at a two-decade high for longer than previously thought to damp demand and reduce price pressures. 

Collins, who noted the lack of disinflationary progress made in 2024, said slower economic growth will be necessary to make sure inflation remains on a sustainable path to the Fed’s 2% goal. She didn’t offer an estimate on when rate cuts may happen.

“The recent upward surprises to activity and inflation suggest the likely need to keep policy at its current level until we have greater confidence that inflation is moving sustainably toward 2%,” Collins said Wednesday at the Massachusetts Institute of Technology. 

“The recent data lead me to believe this will take more time than previously thought,” she said.

Collins’ comments echoed those of Fed Chair Jerome Powell, who said last week the central bank had more work to do to gain the necessary confidence on inflation returning to the 2% target in order to cut interest rates. 

US central bankers left their benchmark rate unchanged last week at the highest level since 2001, where it’s been since July. Powell did not share when he thought the central bank would reduce rates.

The Boston Fed chief said it wasn’t surprising to see bumps in the disinflation process, such as the lack of progress in the first quarter. The Fed’s preferred inflation index rose 2.7% in March from a year earlier, a pickup from the 2.5% pace seen in February.

“The current situation requires methodical perseverance, recognizing that progress will take time and continue to be uneven,” she said. 

In a moderated conversation following her remarks, Collins added, “I do think that holding in this restrictive range for longer will — in an orderly way in my baseline — would slow the economy.” 

‘Moderately Restrictive’

The Boston Fed president noted that much of last year’s inflation progress was driven by goods prices, a trend that is unlikely to continue at the same pace. 

“Progress on inflation will very likely require lower growth in demand, particularly to facilitate further slowing of core non-housing services inflation,” she said.

She described current policy as “moderately restrictive,” adding that it’s possible “policy became restrictive more recently than thought and we have not yet seen its full impact.”

Collins, who doesn’t vote on monetary policy this year, said the goal was for labor markets to continue to be healthy, though “moderating in an orderly way” that better aligns labor supply and demand. She added firms are well positioned to potentially absorb some faster wage growth without putting additional upward pressure on prices. 

The labor market has remained resilient, though is showing signs of moderating. US employers scaled back hiring in April, and the unemployment rate unexpectedly rose. Nonfarm payrolls advanced 175,000 last month, the smallest gain in six months, a Bureau of Labor Statistics report showed Friday.

(Adds additional comment from Collins in the ninth paragraph.)

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