Collins Backs Further Tightening
Susan Collins, who heads the Boston Fed, told an audience on Tuesday that she anticipates the US central bank will have to raise borrowing costs once more before 2026 ends. In remarks prepared for a banking conference hosted by her regional bank and reported by Reuters, she argued that additional tightening is required to guide inflation back to the Fed's 2% goal promptly and durably. Collins said she had backed the Federal Open Market Committee's quarter-point increase last month, which lifted the policy rate to 3.75%-4.00%, and suggested a modest further move would probably be warranted this year, while noting that both the need for and timing of any action would hinge on incoming data and the shifting balance of risks.[S1][S2][S3][S4]
Collins cast the battle against inflation as the Fed's primary mission. She noted that with economic growth resilient and the labour market roughly in balance, officials have the leeway to focus on steering inflation back to target, a goal the central bank has now failed to meet for over five years. She characterised the danger of inflation staying persistently high as significant and said it currently ranks as the central bank's foremost concern.[S1]
Baseline Outlook and Risks
Her central forecast was mostly upbeat. Under what she termed the most probable outcome, the economy continues expanding at a solid clip, employment remains near full strength and inflation gradually drifts back down to 2%, supported by steady efficiency improvements that keep supply and demand aligned. She also said a steady job market ought to keep propping up household spending.[S1]
Even so, Collins pointed to three factors that might derail that trajectory: large-scale spending on data centres and other artificial intelligence infrastructure, the lingering impact of tariffs, and pricier energy stemming from the Middle East conflict. She said she anticipates both headline and core inflation will once again exceed target over the next few months, citing the recent surge in costs for refined products including jet fuel, diesel and heating oil.[S1]
Timing of Next Move
Forecasts released at the September gathering had already anticipated one more increase before the year is out. In recent weeks, a number of Fed officials have indicated the step is more probable in December than at the October 27-28 meeting, and Collins' remarks leave a further hike clearly in play while keeping its timing undecided. She said the policy course heading into the new year would be guided by the data.[S1]
