Fed's Collins backed rate hike, sees elevated inflation risks

Boston Federal Reserve President Susan Collins stated on Tuesday that she supported the US central bank's decision last week to raise interest rates, citing risks that future inflation will remain above the 2% target. Collins wrote on LinkedIn that she now sees an increased likelihood of scenarios where inflation persists above the target.

She indicated that with the labor market on a better footing, monetary policy can focus on returning to price stability after five and a half years of elevated inflation. Collins believes a somewhat more restrictive federal funds rate will help ensure inflation durably returns to the target.

The Federal Reserve last week increased its interest rate target by a quarter of a percentage point, bringing it to the 3.75%-4.00% range. Policymakers also projected another rate increase before the end of the year, though Fed Chairman Kevin Warsh did not affirm this projection, as he is generally opposed to providing forward guidance on monetary policy.

Collins, who is not a voting member of the Federal Open Market Committee this year, did not specify in her posting whether she advocates for further rate increases. The current economic outlook presents challenges as much of the inflation pressure stems from supply shocks, such as the US-Israeli war with Iran, which are difficult for tighter monetary policy to counter. However, the persistence of inflation above the 2% target has led Fed officials to shift away from viewing such shocks as merely transient.