Fed’s Collins Says Holding Rates Hangs On Inflation Progress

Federal Reserve Bank of Boston President Susan Collins said she supported holding interest steady for now, but conditioned that on seeing more progress in bringing inflation back toward the central bank’s 2% target.

“Maintaining the current federal funds rate target range will require continued evidence that inflation is indeed coming down,” Collins wrote in an essay published Tuesday by the Boston Fed. “Should evidence of sustained inflation progress not materialize, I believe it will be appropriate to tighten policy soon.”

Fed policymakers are next scheduled to meet Sept. 15-16 in Washington.

The Boston Fed chief said recent inflation prints, showing subdued underlying price pressures, were “mildly encouraging” but added monthly readings can be volatile. “It remains to be seen whether the recent improvements will be sustained.”

Fed officials left interest rates unchanged in July. Three policymakers, however, favored a quarter-point hike, reflecting growing division over how to react to persistently high inflation. Two other non-voters have said they also supported an increase. Collins, a non-voter, said she backed the rate hold in July.

Investors will be paying close attention to the Fed’s chairman, Kevin Warsh, who’s scheduled to speak Friday at the central bank’s annual conference in Jackson Hole, Wyoming.

Collins said restrictive interest rates together with the rise in longer-term yields, should also mitigate some of the inflationary pressures generated by strong consumption from households and businesses. She added that she expects the pass-through from previous tariffs has largely played out and the impact on inflation from higher oil prices should begin to wane. 

“Less benign scenarios are also quite plausible,” Collins warned. “In particular, there are upside risks to inflation from both additional adverse supply shocks, and a stronger-than-expected pace of economic activity. With regards to the latter, I’ll note that the AI build-out appears to be putting upward pressure on core goods inflation.”

Collins said the labor market remained in an “unusual balance,” and one that was not without risks.

This article was provided by Bloomberg News.