Boston Fed President Susan Collins indicated on Tuesday that the current Federal Reserve policy rate, which is in the 3.5% to 3.75% range, remains mildly restrictive. She believes this rate will continue to contribute to a gradual disinflation, aided by factors such as the recent rise in longer-term bond yields. Collins emphasized that concerns about high prices are widespread among businesses and households in New England, highlighting the pervasive nature of inflation concerns.
However, Collins also cautioned that if evidence of sustained progress in lowering inflation does not emerge, it would be appropriate to tighten policy soon. She stressed the importance of achieving price stability within a reasonable timeframe. Although the Fed's policy rate has been on hold since December, Collins noted that inflation has been above the 2% target for over five years, raising concerns that prolonged periods of missing this goal could entrench consumer expectations and make future disinflation efforts more challenging.
Economists surveyed by Reuters anticipate that new inflation data, specifically the Personal Consumption Expenditures (PCE) price index excluding food and energy, will show a 3.3% annual rate in July. This figure, if confirmed, would be unchanged from the previous month and remains well above the Fed's 2% target. Core PCE has been rising steadily since last year, with Fed officials attributing this to various factors, including Trump administration tariffs, higher oil prices due to the war with Iran, and significant investments in artificial intelligence.
Fed Chairman Kevin Warsh is scheduled to deliver a keynote address on Thursday at the central bank’s annual research symposium in Jackson Hole, Wyoming. This address comes amid internal divisions within the Fed regarding the necessity of further rate hikes and a recent increase in U.S. Treasury yields, indicating a complex and evolving economic landscape for monetary policy decisions.
