Fed may need to raise rates soon without inflation decline, Collins says

Boston Fed President Susan Collins warned on Tuesday that the Federal Reserve may need to raise interest rates soon if new data fails to demonstrate a continued decline in inflation. According to Collins, the current Federal Reserve policy rate will continue to exert downward pressure on prices under her base case forecast. She believes the policy will aid in a gradual disinflation process fueled by the recent surge in long-term bond yields and other factors.

Collins stated, "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 highlighted that worries about high prices are widespread in her discussions with stakeholders across New England.

Economists polled by Reuters anticipate that the upcoming data on Wednesday will reveal that the Personal Consumption Expenditures price index, excluding food and energy, surged by 3.3% annually in July. This would be flat compared to the preceding month and notably higher than the Fed's 2% objective. Core PCE has been on an upward trajectory since last year.

Fed officials have attributed the rise to the Trump administration's import tariffs, higher oil prices stemming from the Iran conflict, and substantial investments in artificial intelligence.

Currently, the Fed's policy rate hovers between 3.5% and 3.75%. The rate has remained unchanged since December as officials await a reduction in inflation.