Federal Reserve Bank of Boston president Susan Collins favors holding rates steady for ‘some time’
Federal Reserve Bank of Boston president Susan Collins said interest rates should remain on hold for “some time,” arguing she is particularly concerned about elevated inflation.
“More than five years of above-target inflation has reduced my patience for ‘looking through’ another supply shock,” Collins said Wednesday in prepared remarks for an event organized by the Boston Economic Club.
If the war in the Middle East is resolved “relatively soon,” Collins expects this year to bring solid economic growth, a possible modest rise in the unemployment rate, and little to no progress on lowering inflation.
“I believe it will likely be important to maintain the current slightly restrictive monetary policy stance for some time,” she said. Above-target inflation, she added, has put a spotlight on keeping inflation expectations around the Fed’s 2 percent goal.
The Federal Reserve held interest rates steady last month, amid still-high uncertainty about the persistence of the war on Iran and its consequences for inflation and economic activity. Policymakers are grappling with a sharp increase in energy and food prices, which drove annual consumer-price inflation to 3.8 percent, the highest jump since 2023. At the same time, activity remains resilient and the jobless rate is low.
Still, a growing number of Fed officials are voicing their concerns about persistent price pressures. Three voting members of the Federal Open Market Committee dissented against signaling their next move would likely be a rate cut. Last week, Collins told Bloomberg News she agreed with the dissenters.
On Wednesday, Collins said the likelihood of alternative scenarios — with higher and more persistent inflation, a worsening in the labor market or both — have increased. A continued disruption of shipments through the Strait of Hormuz, she said, would intensify global economic strains.
“The longer and more disruptive the conflict in the Middle East, the larger the inflationary impact — not only on energy, but also on food and on many of the categories of goods and services in the core basket,” Collins said.
“While it is not in my most likely outlook, I could envision a scenario in which some policy tightening is needed to ensure that inflation returns durably to 2 percent in a timely manner,” she added. “At the moment, though, I see the stance of monetary policy as well positioned to adjust to the evolving outlook and balance of risks.”