Collins warns Fed may need to raise rates if inflation persists
Boston Federal Reserve President Susan Collins said on Wednesday the U.S. central bank may need to raise interest rates if inflation pressures do not abate.
Collins said a large part of the outlook for monetary policy comes down to how long the war in the Middle East lasts, noting that the longer the conflict goes on, the greater the risks become, particularly on the inflation front.
“While it is not in my most likely outlook, I could envision a scenario in which some policy tightening is needed to ensure that inflation returns durably to 2% in a timely manner,” Collins said in the text of a speech to be delivered to the Boston Economic Club.
Collins said that while changes in the U.S. economy have left it better placed to withstand energy shocks, the fact that the latest round of upward inflation pressures has come on top of already persistently strong price pressures changes her outlook somewhat.
“More than five years of above-target inflation has reduced my patience for ‘looking through’ another supply shock,” Collins said, adding that it is critical in the current moment to keep inflation expectations in check.
“I see the stance of monetary policy as well positioned to adjust to the evolving outlook and balance of risks,” said Collins, adding that “given this outlook and the balance of risks, I believe it will likely be important to maintain the current slightly restrictive monetary policy stance for some time.”
Collins warned that even a swift resolution of the U.S.-Israel war with Iran will leave global supply chains roiled and under pressure. She added that although the U.S. economy is relatively insulated, the longer the conflict persists, the greater the likelihood of more substantial negative spillovers.
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