2025 Interest Rates Forecast: Boston Fed’s Collins Urges High Rates Amid Persistent Inflation
Boston Federal Reserve President Susan Collins emphasizes the need for sustained high interest rates as inflation remains above the 2% target, signaling possible future rate hikes to manage ongoing economic demand pressures.
Boston Fed President Collins: Interest rates must stay elevated, potential for further increases
Despite notable declines from last year's inflation peaks, it remains premature to conclude that the Federal Reserve has completed its interest rate hikes. Boston Fed President Susan M. Collins highlighted that rates may need to rise again to keep inflation in check.
Key Insights
- Collins stressed that the Fed’s 18-month aggressive rate-hike strategy requires additional time to fully impact inflation.
- She pointed to recent data indicating a resurgence in inflationary pressures.
- Her remarks precede the Federal Open Markets Committee (FOMC) meeting scheduled for September 19-20, where the next federal funds rate decision will be made.
- Collins noted that the effects of earlier rate increases have yet to fully influence the market due to a lag, especially since hikes began during a strong economic phase.
In her address, Collins emphasized that while the Fed expects to maintain the current interest rate range of 5.25% to 5.5% for an extended period, failure to control inflation could necessitate further rate hikes.
“Although we may be near or at the peak, additional tightening could be justified depending on incoming economic data,” Collins stated, referencing recent upticks in inflation after previous declines.
Allowing Time to Distinguish Economic Signals
Inflation, which soared above 9% in mid-2022, has moderated to 3.3%, yet still exceeds the Fed’s 2% target. This persistent inflation has led Federal Reserve Chair Jerome Powell to suggest that more rate increases might be required.
Collins explained that the impact of prior rate hikes has not fully permeated the economy due to timing lags, especially as increases were implemented during robust economic conditions. She expressed concern over core inflation trends, which are a critical indicator of future inflation movements.
Ongoing economic growth continues to fuel demand for goods and services, sustaining inflationary pressures. However, Collins anticipates a slowdown in growth towards the end of 2024.
“Patience is essential to better differentiate meaningful economic signals from short-term fluctuations and to balance risks as tighter monetary policy effects unfold,” Collins remarked.
Her comments come ahead of speeches by other Federal Reserve officials this week, including Dallas Fed President Lorie Logan, Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, New York Fed President John Williams, and Chicago Fed President Austan Goolsbee.
Additionally, the Federal Reserve is set to release its Beige Book report at 2 p.m. ET on Wednesday, providing further economic insights ahead of the September FOMC meeting.
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