Fed’s Collins says latest US inflation readings are ’mixed’

The latest U.S. inflation report released on Thursday was described as "mixed" by Boston Federal Reserve President Susan Collins. While the headline rate was stronger than anticipated, Collins attributed the increase to a variety of factors that, individually, should not push the U.S. central bank towards raising interest rates.

One such factor mentioned was the rise in portfolio management fees, driven by stock values rather than supply and demand conditions. Collins expressed that she still expects inflation to fall on its own. However, she indicated that she is prepared to raise rates if inflation does not decline.

Collins stated that the overall figure was slightly higher than she had expected, but upon closer examination, she identified some positive signs. Specifically, the monthly inflation for goods and services, where prices are determined by market forces, was around the Fed's 2% target. She maintained that her "modal scenario" continues to predict gradual disinflation under the current slightly restrictive policy interest rate.

Collins also noted that research from the Boston Fed suggests other reasons for potential price pressure easing, such as improved productivity and the potential reduction of inflation linked to the Trump administration's import tariffs.

In summary, Collins described the inflation report as mixed, with some promising signs but overall concerns about a broad-based rise in prices. She emphasized that a very broad-based increase across market prices would have been more alarming. The Personal Consumption Expenditures Price Index rose at a 3.7% annual rate in July, exceeding the Fed's target, which prompted some of Collins' colleagues to suggest the need for rate increases.

Fed Chairman Kevin Warsh may address this issue in his keynote speech at the conference on Friday. Collins observed a recent rise in bond yields, which could impact economic activity, but she believes this does not yet indicate a rise in inflation expectations. The central bank's estimates of inflation compensation, as seen in the pricing of inflation-protected securities, are consistent with price stability.

Collins avoided commenting on Treasury Secretary Scott Bessent's recent bond market intervention, stating that the Fed would assess evolving situations as appropriate.