US Market: Fed’s Collins backs rate hike, flags persistent inflation risks

Boston Federal Reserve President Susan Collins supported the US central bank’s decision to raise interest rates last week, citing growing risks that inflation could remain above the Federal Reserve’s 2% target.

Collins said the improving labour market gives monetary policymakers greater scope to focus on restoring price stability. She also indicated that a somewhat more restrictive monetary policy stance would be needed to ensure inflation returns to the Fed’s target on a sustained basis.

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The Federal Reserve raised its benchmark interest-rate target by 25 basis points last week to a range of 3.75%-4.00%, marking its first rate increase in more than three years. Policymakers’ latest projections also indicated that another quarter-point increase could come before the end of 2026.

Fed Chair Kevin Warsh has not endorsed that projected path for rates, maintaining a reluctance to provide explicit guidance on future monetary policy. Collins, who is not a voting member of the Federal Open Market Committee this year, also did not indicate whether she favours another increase.

The inflation outlook presents a difficult challenge for the Fed because some of the recent upward pressure on prices has stemmed from supply-side disruptions and geopolitical developments. Such shocks are generally less responsive to higher interest rates than demand-driven inflation.

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However, the persistence of inflation above the Fed’s 2% objective has led policymakers to place greater emphasis on preventing temporary price pressures from becoming entrenched, Reuters reported.

Other Fed officials have also highlighted concerns about persistent inflation. Richmond Fed President Tom Barkin said on Tuesday that price pressures were no longer limited to energy and tariff-related effects, while Minneapolis Fed President Neel Kashkari said inflation remained elevated across broad sections of the US economy, Reuters reported.

The latest comments reinforce the Fed’s focus on inflation even as policymakers assess the strength of the broader US economy and the impact of geopolitical and supply-side shocks on prices.

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