Boston Fed President Susan Collins reiterated her expectation that another interest-rate increase would be appropriate before the end of 2026 to ensure inflation returns sustainably to the Fed’s 2% target. In remarks prepared for a banking conference at the Boston Fed on Tuesday, Collins said she supported September’s rate hike, which brought the federal funds rate to 3.75–4.00%. She currently expects “it will be appropriate to raise rates a bit further before the end of the year to ensure a timely and durable return” of inflation to target. However, she emphasized that both the need for further action and its timing would depend on the “totality of incoming data” and the evolving balance of risks.
Collins expressed confidence in the underlying economy, saying her “most likely” outlook “continues to feature healthy GDP growth, with the labor market remaining near full employment.” She expects inflation to gradually return to 2%, supported by efficiency improvements that help balance demand and supply. The resilience of economic activity and employment gives the Fed room to maintain its focus on inflation, rather than facing an immediate trade-off between containing prices and supporting a weakening economy. Her assessment supports another measured increase without establishing an urgent need to act at the October meeting.
Nevertheless, persistent inflation risks continue to complicate the outlook. Collins highlighted higher energy costs linked to the Middle East conflict, ongoing tariff effects and strong AI infrastructure investment as potential sources of price pressure. “I expect both total and core inflation to again run above the Fed’s 2% target in the coming months,” she warned, citing recent increases in refined energy prices, including jet fuel, diesel and home heating oil. Her remarks reinforce the case for further tightening this year, while leaving the timing conditional on whether incoming inflation and employment data continue to support her relatively constructive economic outlook.
Key Takeaways
- Collins expects another Fed hike in 2026: Boston Fed President Susan Collins believes further tightening will be appropriate before year-end to secure a sustainable return of inflation to the 2% target.
- Timing remains data-dependent: Collins supported September’s rate increase but did not commit to another hike in October. She emphasized that further action would depend on the “totality of incoming data” and the evolving balance of risks.
- Economic resilience supports further tightening: Collins expects healthy GDP growth and a labor market near full employment, giving the Fed room to maintain its focus on inflation.
- Energy, tariffs and AI pose inflation risks: Higher refined fuel prices, ongoing tariff effects and strong AI infrastructure investment could complicate disinflation and keep price pressures elevated.
- Inflation expected to ease gradually: Collins anticipates a return toward 2% over time, supported by efficiency gains, but expects both headline and core inflation to remain above target in the coming months.
