This week the Boston Economic Club and the Federal Reserve Bank of Boston held a joint event that featured remarks from, and a fireside chat with, Federal Reserve Bank of Boston President and CEO Dr. Susan Collins.

This is an important week for the Federal Reserve System (Fed) with Kevin Warsh succeeding Jerome Powell as Chair.

The Fed is comprised of 12 independent regional Federal Reserve Banks, of which Boston is one, and a seven-member Board of Governors. The Board of Governors sets the discount rate (currently 3.75%) and reserve requirements (0% since March 2020) for banks and depositary institutions. The Federal Open Market Committee (FOMC), comprised of the Board of Governors, the President of the Federal Reserve Bank of New York, and a rotating subset of the other four Regional Bank Presidents, sets the target for federal funds rate (currently 3.50-3.75%) and oversees open market transactions to control the money supply in support of the target rate. Boston’s President will rotate onto the FOMC in 2028.

The Fed has, from time to time, found itself in the political crosshairs. The success of the Fed is a function of its independence from influence from the President or Congress. Its data-driven decision-making is a cornerstone of the confidence the public holds in the Fed, and its effectiveness. Exiting Fed Chair Jerome Powell has, in our view, done an outstanding job of navigating political pressure and maintaining Fed independence.

While many economic indicators remain strongly positive, inflation is well above the Fed’s 2% target owing in large measure to tariffs, the war in the Middle East, and capital expenditures associated with artificial intelligence. To date, unemployment has remained within targeted ranges at an aggregate level, though data shows recent college graduates are experiencing joblessness at a higher rate.

In her remarks this week, Dr. Collins demonstrated fidelity to data, especially in the face of uncertainty, like the duration of the war with Iran, and the longer-term economic impacts of AI. Based on his Senate testimony, incoming Chair Kevin Warsh also intends to follow the data but will likely favor more forward-looking data with an eye towards understanding where the economy is headed.

We choose to welcome this change and believe that while the inputs and discourse may look slightly different, the mandate remains the same and the Fed’s independence remains paramount.

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2025

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