Fed's Collins: Rates Must Rise Soon Unless Inflation Data Shows Continued Decline

The U.S. Federal Reserve will need to raise interest rates soon unless coming data show a continued decline in inflation that remains too high and has become a "pervasive" concern for businesses and households, Boston Fed President Susan Collins said Tuesday.

Market Context

The Fed's policy rate currently sits in the 3.5% to 3.75% range, unchanged since December as officials waited for inflation to ease toward the central bank's 2% target. The pause came amid steady progress on disinflation from post-pandemic peaks above 7%, but that progress has stalled this year with price pressures proving stickier than anticipated.

Analysis

Collins outlined her base case Tuesday in comments posted to the Boston Fed website, saying current policy settings should continue pushing down prices and supporting "gradual disinflation" aided by rising longer-term bond yields. However, she emphasized the Fed cannot wait indefinitely. With inflation above target for more than five years, Collins expressed concern that prolonged misses on the inflation goal could shift consumer expectations in ways that make achieving price stability harder to attain. "Should evidence of sustained inflation progress not materialize, I believe it will be appropriate to tighten policy soon to ensure we deliver price stability in a reasonable time frame," she wrote. The Boston Fed president noted that concerns about high prices remain dominant themes in her conversations with stakeholders across New England.

Key Numbers

- Current Fed funds rate range: 3.5% to 3.75% - Expected July core PCE inflation (Wednesday release): 3.3% annual rate - Previous month core PCE reading: 3.3% annual rate - Fed's stated inflation target: 2.0% - Policy rate unchanged since: December 2025

What to Watch

Wednesday brings the July Personal Consumption Expenditures price index report, excluding food and energy—the Fed's preferred inflation gauge—with economists polled by Reuters expecting the 3.3% annual reading to match June's level. Market participants will also closely track Friday's keynote address from Chairman Kevin Warsh at the central bank's annual research symposium in Jackson Hole, Wyoming. His remarks come amid growing division within the Fed about whether additional rate hikes are warranted and as U.S. Treasury yields have climbed recently, reflecting shifting expectations for monetary policy.