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Boston Fed President Susan Collins warns rates may need tightening soon
Collins said the Fed policy rate, held since December, will push prices down under her base case, but it may need to be tightened if inflation progress is not sustained.
Boston Fed President Susan Collins said the Federal Reserve will likely need to raise interest rates soon unless new data show continued, sustained declines in inflation that is currently still too high, a concern she said is pervasive among businesses and households. Collins made the remarks in comments posted to the Boston Fed website on Tuesday.
Under her base case, the current Fed policy rate is expected to keep pushing down prices and support gradual disinflation, with assistance from factors including a recent rise in longer term bond yields. Collins added that if evidence of sustained inflation progress does not materialize, she believes it will be appropriate to tighten policy to deliver price stability within a reasonable timeframe.
Collins said she remains concerned about high prices and pointed to conversations with stakeholders across New England. Economists polled by Reuters expect new inflation data on Wednesday to show the Personal Consumption Expenditures price index, excluding food and energy, rose at a 3.3% annual rate in July, unchanged from the prior month and above the Fed’s 2% target.
The Fed’s policy rate currently sits in a 3.5% to 3.75% range and has been on hold since December while officials awaited clearer inflation cooling. Collins said inflation has been above target for more than five years and that the Fed cannot wait forever, warning that missing the goal could shift consumer expectations in a way that makes the target harder to achieve, as Fed Chair Kevin Warsh is set to speak at the central bank’s Jackson Hole research symposium Friday amid debate over the need for rate hikes and rising U.S. Treasury yields.