Boston Fed's Collins Backs Rate Hike as Path to 2% Inflation

Boston Federal Reserve Bank President Susan Collins said she supported last week's quarter-point interest rate increase, arguing that a tighter policy stance will help return inflation to the central bank's 2% goal.

"A somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target," Collins wrote in a LinkedIn post on Tuesday. "With the labor market on a better footing, monetary policy can focus on a timely return to price stability, especially after five and a half years of too high inflation."

Collins, who does not vote on monetary policy this year, flagged the risk that price growth stalls well above the Fed's goal. She said she sees an "increased likelihood" of scenarios in which inflation remains "notably above 2%."

The Federal Open Market Committee voted unanimously last week to raise the benchmark interest rate by a quarter percentage point. The move came alongside updated economic projections from policymakers.

Those projections point to at least one more increase this year. The median forecast from officials pencils in an additional quarter-point hike, according to the projections released with the decision.

The tightening cycle may run even longer. Eight officials forecast yet another rate increase in 2027, a sign that a meaningful bloc of the committee expects the fight against inflation to extend well beyond the near term.

Fed Chairman Kevin Warsh, who again abstained from submitting rate projections, characterized last week's decision as removing a "dose of accommodation" from the economy.

Collins's comments add a Boston Fed voice to the debate over how restrictive policy needs to become. Her framing — that the labor market's improved footing frees monetary policy to concentrate on price stability — suggests support for holding rates higher for longer if inflation fails to cool.

The stakes are considerable. Collins herself put the timeframe at five and a half years of inflation running too high, a stretch that has tested the central bank's credibility and its 2% anchor.

The split signals inside the projections — a median path of one more hike this year, but eight officials bracing for increases stretching into 2027 — will shape market expectations for the pace and duration of tightening. Watch the incoming inflation data: Collins's warning about scenarios with inflation stuck "notably above 2%" indicates the Fed stands ready to keep raising until the target is durably met.