- Boston Fed President Susan Collins signaled that policy may need to stay restrictive for an extended period, with potential rate increases if inflation persists.
- She warned that inflation remains the Fed's top concern, with expectations harder to anchor due to energy shocks from Middle East tensions.
- Collins sees inflation unlikely to ease this year, with meaningful cooling possible only by 2027.
Persistent Inflation Pressures
Federal Reserve Bank of Boston President Susan Collins said Thursday that current monetary policy is well positioned but may need to remain restrictive for longer than anticipated, as inflation risks persist. In remarks at a conference in Boston, Collins emphasized that the central bank's fight against inflation is far from over, noting that “inflation remains too high” and that the Fed stands ready to raise rates if needed.
“The policy is in a good place, but we need to be patient and let the data guide us,” Collins said. She highlighted that inflation expectations could become unanchored if energy price shocks from the Middle East conflict persist, complicating the Fed's task. “Prolonged conflict increases both inflation and growth risks, making policy decisions more difficult,” she added, though she noted the U.S. economy is better insulated from energy shocks than in the 1970s.
Rate Cuts Unlikely This Year
Collins reiterated that she still sees room for rate cuts later, but stressed that inflation is unlikely to ease meaningfully this year and may only cool to the Fed's 2% target by 2027. “We need to see more progress on inflation before we can consider easing,” she said. The comments reinforce a “higher-for-longer” narrative that has been driving market expectations, with traders pushing back bets on rate cuts as inflation data remains stubborn.
Market participants have been on edge, with the S&P 500 dipping slightly after Collins's remarks. The yield on the 10-year Treasury note edged up to 4.65%, reflecting expectations that rates will stay elevated. “The Fed is in a tough spot—growth is resilient, but inflation isn't falling fast enough,” said Priya Misra, portfolio manager at J.P. Morgan Asset Management.
Geopolitical Risks and Policy Uncertainty
Collins also warned that the energy supply risks stemming from the Middle East conflict add to inflation uncertainty. While the U.S. has become more energy independent, a sustained spike in oil prices could still feed through to core inflation, she noted. “We have to watch the data carefully because the economy has been surprising us,” she said, when asked about the potential for rate increases.
The Boston Fed chief's cautious stance aligns with other Fed officials who have recently emphasized patience. Her comments come ahead of the Fed's next meeting in December, where policymakers are widely expected to hold rates steady. A recent Bloomberg poll showed a majority of economists expect the first cut to come no earlier than mid-2025.
This article has been updated to include market reaction.