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Fed’s Collins Open to September Hike as Cost Pressures Persist
Boston Fed President Susan Collins said she could support a rate increase in September if inflation fails to ease sufficiently, highlighting persistent cost-of-living pressures intensified by Iran war. Speaking in an interview with Financial Times on Wednesday, Collins said, “I do see the possibility that economic conditions in the coming months will require tighter policy, and I would be prepared to raise rates in that context.” She supported keeping rates unchanged in July and currently views monetary policy as only “slightly restrictive.”
Collins said inflation has continued to squeeze businesses and households across US Northeast, with price concerns surfacing in nearly every conversation with firms. Pressure is particularly acute for lower- and middle-income households, she said, with some struggling to “make ends meet” as elevated energy costs add to broader affordability problems.
While Collins expects inflation to continue declining gradually, she stressed that price growth has remained above Fed’s 2% target for more than five years, leaving policymakers with little room for complacency.
Her remarks reinforce Fed’s increasingly difficult September trade-off. Recent labor-market weakness has strengthened case for holding rates, but persistent inflation and renewed energy pressure could still justify further tightening if upcoming data disappoint. Collins is not currently a voting member of FOMC, but her willingness to contemplate a September hike adds to hawkish argument that current policy may not yet be restrictive enough to ensure inflation returns sustainably to target.
RBA Accepts Softer Inflation but Still Leaves Scope for One More Hike
RBA accepted that inflation has improved, but refused to turn that improvement into a declaration that rate hikes are finished. Cash rate was left unchanged at 4.35% unanimously, yet Board described policy as only “somewhat restrictive” and explicitly kept another increase on table, saying it could still raise rates “if upside risks materialise.” That is the clearest way to read Tuesday’s decision: softer inflation bought RBA time, not an all-clear.
New forecasts make that tension unusually visible. RBA cut June 2026 headline CPI forecast from 4.8% to 3.9% and December projection from 4.0% to 3.6%. Trimmed mean was lowered from 3.8% to 3.6% for June and from 3.5% to 3.3% for December. But Board did not carry that improvement forward aggressively. June 2027 headline inflation was revised up from 2.4% to 2.8%, with December raised from 2.4% to 2.6%. Trimmed mean was only marginally lowered from 3.1% to 3.0% for June 2027 and stayed at 2.6% for December. In other words, RBA believes current inflation picture is better than feared, but still does not trust disinflation enough to bring target return materially forward.
That explains why statement retained a tightening bias despite signs economy is responding. RBA said “headline inflation is still too high”, warned higher oil costs are feeding through to other prices, and noted inflation is not expected to return to around midpoint of target band until late 2027. Yet there is also clear evidence previous hikes are biting: consumer spending is slowing, housing prices have fallen in some capitals, new housing lending has weakened and labour conditions have eased more than expected. Unemployment forecasts were lifted from 4.2% to 4.4% for June 2026 and from 4.3% to 4.5% for December, even as later GDP forecasts were nudged higher.
The technical cash-rate assumption completes picture. RBA projections are built around a market path that rises toward 4.5%, meaning forecast convergence of inflation toward target is not based on 4.35% being held forever. That is a meaningful hawkish signal. RBA is saying current rate is restrictive enough to pause and watch, but not restrictive enough to declare victory.
For markets, that means tightening bias clearly survived Tuesday’s meeting. AUD bulls did not get a fresh hike signal, but AUD bears also did not get confirmation that peak rates are firmly in place.
Summary
RBA Decision
| Item | Decision / View |
|---|---|
| Cash rate | Held at 4.35% |
| Decision | Unanimous |
| Policy stance | “Somewhat restrictive” |
| Inflation assessment | “Still too high” |
| Tightening bias | Further hike possible if upside risks materialise |
| Technical cash-rate assumption | Rises toward 4.5% |
Key Forecast Revisions
| Forecast | August SoMP | Previous |
|---|---|---|
| CPI — Jun 2026 | 3.9% | 4.8% |
| CPI — Dec 2026 | 3.6% | 4.0% |
| CPI — Jun 2027 | 2.8% | 2.4% |
| CPI — Dec 2027 | 2.6% | 2.4% |
| Trimmed mean — Jun 2026 | 3.6% | 3.8% |
| Trimmed mean — Dec 2026 | 3.3% | 3.5% |
| Trimmed mean — Jun 2027 | 3.0% | 3.1% |
| Trimmed mean — Dec 2027 | 2.6% | 2.6% |
| Unemployment — Jun 2026 | 4.4% | 4.2% |
| Unemployment — Dec 2026 | 4.5% | 4.3% |
| Unemployment — Jun 2027 | 4.6% | 4.4% |
Key Takeaways
- RBA unanimously held cash rate at 4.35%, but tightening bias clearly survived.
- Board accepted softer near-term inflation, cutting June 2026 CPI forecast from 4.8% to 3.9% and trimmed mean from 3.8% to 3.6%.
- However, RBA did not translate softer inflation into a substantially faster return to target. June 2027 headline CPI was actually revised from 2.4% to 2.8%.
- Policy was described as only “somewhat restrictive”, rather than sufficiently restrictive, while Board explicitly retained option of raising rates again if upside risks materialise.
- Technical forecast assumption has cash rate moving toward 4.5%, reinforcing that projected disinflation is not based on 4.35% being held indefinitely.
- Labour outlook weakened, with unemployment forecasts raised across near-term horizon, confirming previous tightening is already slowing economy.
- Overall message is a hawkish hold: RBA accepted better inflation data but is not yet prepared to declare tightening cycle finished.
Fed’s Hammack Sees Multiple Hikes, Says Current Rates Aren’t Restrictive Enough
Cleveland Fed President Beth Hammack made one of clearest cases yet for renewed tightening, saying in a Yahoo Finance interview on Monday, that more than one rate hike may ultimately be needed to return inflation to target. Hammack, who dissented from July decision to hold rates at 3.50–3.75% in favor of a 25bp increase, argued that a single move would have limited impact. “One 25 basis point move probably doesn’t do a whole lot for the economy,” she said, adding that “it’s probably some number of [movements],” although she would not prejudge how many or where rates would ultimately peak.
Her argument rests partly on view that current policy is not restrictive enough. Hammack said she does not believe rates at 3.50–3.75% are “meaningfully restricting” economy, noting that businesses are not reporting restraint on investment or growth because of borrowing costs. “So to me that says that now is the time to act,” she said. Hammack compared gradual tightening with pumping brakes before reaching a stop sign rather than waiting to slam them on later, warning that delaying action would leave inflation above 2% for longer and risk making eventual disinflation more costly.
Importantly, July’s weak employment report has not shifted her focus away from inflation. Despite payrolls contracting -23K, Hammack pointed to unemployment at 4.1%, around her estimate of full employment, and said, “I’m still not seeing a problem” in labor market. She was similarly skeptical that inflation will return to target without additional policy restraint: “From where I sit, I just don’t see it coming back on its own.” That puts Wednesday’s July CPI in sharper focus. Core CPI slowed from 2.6% in June and is expected to ease to 2.5% in July; a meaningful downside surprise would challenge Hammack’s assessment, while sticky or stronger inflation would reinforce her case for multiple hikes.
Hammack also pushed back against idea that higher market yields can substitute for Fed action. “Markets are a complement for the Fed. They’re not a substitute,” she said, adding that policymakers must “stand behind our words with our actions when appropriate.” On communication, she argued credibility comes not from extensive forward guidance but from explaining Fed’s reaction function and commitment to 2% inflation. Her remarks underline growing divide ahead of September: weak employment has raised hurdle for another hike, but hawks such as Hammack argue inflation still requires not merely one additional move, but potentially a renewed tightening sequence.
Key Takeaways
- Cleveland Fed President Beth Hammack said more than one rate hike will likely be needed, arguing that “one 25 basis point move probably doesn’t do a whole lot for the economy.”
- Hammack does not view current 3.50–3.75% policy rate as “meaningfully restricting” activity and said “now is the time to act.”
- She remains focused on inflation despite July payrolls falling 23K, saying unemployment at 4.1% is around full employment and “I’m still not seeing a problem” with labor market.
- Hammack also rejected idea that inflation will return to target without further restraint: “From where I sit, I just don’t see it coming back on its own.”
- Her remarks make Wednesday’s July CPI an important test. Softer core inflation would weaken case for renewed tightening, while sticky inflation would strengthen hawkish argument.
- She stressed that “markets are a complement for the Fed. They’re not a substitute,” pushing back against idea that higher bond yields can replace Fed action.
- Comments reinforce widening policy split: weak labor data have raised hurdle for another hike, but some officials still see inflation as requiring a multi-step tightening response.