Boston Federal Reserve President Susan Collins indicated on Tuesday that the U.S. central bank may need to raise interest rates if inflation does not show sustained progress, despite recent policy stability.
Collins, in a post on the Boston Fed's website, stated that without clear evidence of easing inflation, it would be appropriate to tighten monetary policy "soon" to ensure price stability. The Federal Reserve has held its policy rate between 3.5% and 3.75% since December, awaiting further disinflationary signals.
Economists polled by Reuters expect the core Personal Consumption Expenditures (PCE) price index—a key inflation gauge—to rise 3.3% year-over-year in July, up from prior readings. Core PCE, which excludes food and energy, has climbed steadily since last year, complicating the Fed's path to its 2% inflation target.
Collins noted that under her base case, the current policy rate would continue to exert downward pressure on prices, aided by recent increases in longer-term bond yields. However, she emphasized that persistent concerns about high prices remain prevalent in discussions with stakeholders across New England.
Fed officials have attributed recent inflation pressures to several factors, including the Trump administration's import tariffs, elevated oil prices linked to geopolitical tensions with Iran, and substantial investments in artificial intelligence driving demand. The next PCE data release is expected Wednesday, providing further insight into inflation trends.
The Fed's policy stance remains data-dependent, with officials weighing the balance between supporting economic growth and controlling inflation amid evolving economic conditions.
