Boston Fed President Susan Collins indicated on Tuesday that the U.S. Federal Reserve will need to increase interest rates soon unless forthcoming data demonstrates a sustained decrease in inflation. She noted that high inflation is a pervasive concern for businesses and households.
Collins, in comments posted on the Boston Fed website, explained that while the current policy rate is expected to gradually lower prices, aided by rising longer-term bond yields, the Fed cannot wait indefinitely for inflation to meet its 2% target. If evidence of sustained progress on inflation does not materialize, she believes tightening policy will be necessary to achieve price stability within a reasonable timeframe. Inflation has been above the Fed's target for over five years, raising concerns that prolonged deviation could shift consumer expectations, making the goal harder to reach.
Economists surveyed by Reuters anticipate that the Personal Consumption Expenditures (PCE) price index, excluding food and energy, will show a 3.3% annual increase in July, unchanged from the previous month and still considerably higher than the Fed's 2% target. Core PCE, a key inflation indicator, has been rising steadily due to factors like import tariffs, higher oil prices, and substantial investments in artificial intelligence. The Fed's policy rate has been held steady at 3.5% to 3.75% since December, as officials awaited signs of inflation easing.
While Collins expressed optimism that inflation might still cool, she emphasized the urgency if data does not support this outlook. Her remarks precede a highly anticipated keynote address by Fed Chairman Kevin Warsh on Thursday at the central bank's annual research symposium in Jackson Hole, Wyoming, amidst internal divisions regarding rate hikes and an increase in U.S. Treasury yields. Other Fed officials also prefer patience but acknowledge the need for sustained progress in inflation data.
