By Michael S. Derby

NEW YORK (Reuters) – Boston Federal Reserve Bank President Susan Collins said on Thursday that significant uncertainty about the outlook calls for the central bank to proceed cautiously with future rate cuts.

“With an economy that is in a generally good place and politics already closer to a more neutral position, I see the current nature of uncertainty as calling for a gradual and patient approach to policymaking” , Collins said in the text of a speech prepared for an event at his bank.

The official said that as the new year begins, “inflation has fallen significantly from its peak in 2022, and data continue to point to a gradual, if uneven, path towards the 2 percent target fed”. He added that lower inflation has been achieved even as the labor market has “remained broadly healthy” and has rebalanced due to excessively warm conditions.

Collins’ remarks came as central bankers have begun weighing the state of the economy and the outlook for monetary policy after last month’s Federal Open Market Committee meeting that saw officials cut the its interest rate target range by a quarter of a percentage point to between 4.25% and 4.5%. Officials also scaled back the number of cuts planned for the new year amid expectations that inflation will remain high longer than expected.

Collins said he supported last month’s cut but described it as a “close call” that “provided additional insurance to preserve healthy labor market conditions while maintaining a restrictive policy stance that is still needed to restore price stability in a sustainable way”.

Financial markets are actively debating whether the Fed will be able to deliver another rate cut at the policy meeting later this month. Further complicating the outlook is the return of Donald Trump to the presidency, having campaigned on a platform of massive trade tariffs and deportations that many economists believe will further pressure inflation and make it harder for the Fed to return to pressure of prices at 2%.

Collins also said that “it is too early to tell how future policy changes by the new administration and Congress might influence the trajectories of inflation and economic activity.”

Collins did not offer a firm view on where he expects monetary policy to go, but said that his views on rate policy and the economy were broadly in line with forecasts released by the Fed in the their meeting last month.

Collins noted that Fed policy is not on a pre-set path and is currently well positioned for what may come. He also said he now sees more sticky inflation levels relative to his recent views.

(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)