Boston Fed President Susan Collins said on Wednesday that while holding interest rates steady remains her base case, the Federal Reserve may still need to tighten policy further if inflation pressures fail to ease. Speaking at the Boston Economic Club, Collins stressed that the longer the Middle East conflict persists, the greater the inflation risks become, particularly through energy prices and supply chain disruptions.
“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% in a timely manner,” Collins said. She emphasized that the Fed’s current “slightly restrictive” policy stance remains appropriate for now, but warned policymakers can no longer comfortably dismiss supply-side inflation shocks as temporary. “More than five years of above-target inflation has reduced my patience for ‘looking through’ another supply shock,” she said.
Collins acknowledged the US economy is more resilient to energy shocks than in previous decades, describing demand as “resilient” and growth as still “solid.” However, she warned that prolonged conflict in the Middle East could generate broader spillovers and keep inflation elevated well into next year. “The likelihood of other scenarios — with higher and more persistent inflation, more adverse labor market outcomes, or both — has increased,” Collins said. Her remarks reinforce the growing shift inside the Fed away from discussing rate cuts and toward managing the risk that inflation may remain persistently above target.
