Susan M. Collins. Photo courtesy of the Federal Reserve Bank of Boston.

Boston Federal Reserve President and CEO Susan M. Collins is expecting interest rates to remain at restrictive levels, hinting that the Fed may have to further increase key rates, depending on economic data to come.

“In my view, this phase of our policy cycle requires patience, and holistic data assessment, while we stay the course. I expect we’ll need to hold rates at restrictive levels for some time. And while we may be near, or even at, the peak for policy rates, further tightening could be warranted, depending on the incoming data,” Collins said during a speech at a New England Council event on Wednesday.

With the US central bank’s mandate to bring down inflation to 2 percent, Fed Chair Jerome Powell earlier hinted that the economy could require a few more rate hikes. Since last year, the Fed has raised its benchmark rate to a 22-year high of 5.4 percent. From a peak of 9.1 percent in June 2022, inflation has slowed to 3.2 percent, which is still above the 2-percent target.

Collins said central bankers are in a period where it is difficult to extract “signal” from the “noise” in economic data, according to a transcript of her remarks released by the Boston Fed. Based on price and labor market data, she said, demand continues to outpace supply which bring about price pressures. The unemployment rate has accelerated and wage growth remains elevated, but Collins said she believes that an environment where wage growth is consistent with the Fed’s 2 percent inflation target is better.

Economic data is pointing to promising developments in bringing down inflation, the Boston Fed president said: “Given the continued strength in demand, my view is that it is just too early to take the recent improvements as evidence that inflation is on a sustained path back to 2 percent.”

While continued restrictive monetary policy should temper demand further to bring it into better balance with supply, Collins said she is well aware of the risks and uncertainties, and that monetary policy actions may take longer to be felt in the economy than the usual lag of four to six quarters.

“Monetary policy may take longer than normal to affect the broader economy. But given that policy is clearly in restrictive territory, I do expect to see slowing growth by the end of this year and throughout 2024. And there are already some signs consistent with this outlook. Firms’ cash levels are returning to pre-pandemic trends, and households’ excess savings are declining. Demand should slow as spending becomes more interest sensitive,” Collins said.

“The goal is an orderly slowdown that better aligns demand with supply, which is essential to ensure that inflation is on a sustainable trajectory back to target,” she added.

She noted that in New England, the real economic issues and concerns revolve around childcare, housing, climate and transportation and broadband infrastructure, as well as the gaps in wealth accumulation and prosperity by group and place. She said the Boston Fed continues to work on and partner with stakeholders in the region to help address these issues.