Collins says Fed likely needs one more hike in 2026, flags three inflation risks

Comments from Collins bolster the view that the Fed will deliver another quarter-point increase before the end of 2026. Recent official remarks point to December as more likely than the meeting scheduled for this month. That outlook should keep short-term Treasury yields elevated and check any prolonged dollar decline as long as rate increases remain a possibility. For crude oil traders, the key factor is the feedback loop: additional rises in crude and refined product prices stemming from the Middle East conflict now directly influence Fed rate expectations, so energy gains have implications for interest rates and the dollar. A period of weaker economic data would be the primary factor to cool that pricing dynamic.

Earlier:

• Fed Williams: Sees no need for rate hike in 2027 at this time

Collins views the strong economy as permission for the Fed to maintain its tightening stance, and identifies war-related fuel costs as the most obvious factor preventing inflation from returning to its 2% goal independently.

Summary:

• Susan Collins, president of the Boston Fed, anticipates a further rate rise before 2026 ends.
• She backed last month's quarter-point increase that brought the policy rate to 3.75%-4.00%.
• Collins described the elevated inflation risk as the Fed's primary concern, noting inflation has exceeded target for over five years.
• Her baseline forecast includes healthy growth, a roughly balanced job market near full employment, and a slow return of inflation to 2%.
• She listed data-center and AI investment, tariffs, and Middle East war-related energy expenses as risks, and said she expects headline and core inflation to stay above target in the near term.
• The timing of the next move rests on data; many officials have indicated December rather than the October 27-28 gathering.

On Tuesday, Boston Fed chief Susan Collins stated that the Federal Reserve will likely need to raise rates again before 2026 comes to a close.

Collins made the comments in a prepared speech for a banking conference hosted by the Boston Fed, as covered by Reuters. She noted that she had voted for the FOMC's last month's quarter-point hike, which set the policy rate at 3.75%-4.00%, and signaled that a small additional increase later this year would be suitable. However, she emphasized that her stance on whether and when to act depends on the complete set of upcoming data and the evolving risk picture.

Collins portrayed combating inflation as the Fed's core mission. Given sustained growth and a roughly balanced labor market, she argued that policymakers can focus on returning inflation to target—something the Fed has failed to achieve for over five years. She termed the probability of sustained high inflation as high and the central bank's primary current emphasis.

Collins's baseline projection was broadly positive. Under what she described as the most probable outcome, the economy continues to expand robustly, the job market remains near full employment, and inflation declines slowly to 2%, aided by persistent efficiency improvements that balance supply and demand. She also noted that a steady labor market should keep supporting consumer spending.

Collins, however, pointed to three factors that could disrupt this trajectory: substantial investment in data centers and other AI infrastructure, the persistent impact of tariffs, and elevated energy prices due to the Middle East conflict. She predicted that both headline and core inflation would remain above target in the months ahead, citing the recent surge in refined product prices including jet fuel, diesel, and heating oil.

The Fed's September projections already included an additional rate increase before the end of 2026. In recent weeks, multiple central bank officials have indicated that December is a more probable time than the October 27-28 meeting, and Collins's remarks maintain a further rise as a distinct possibility without committing to a specific date. She stated that the interest rate path heading into next year will be determined by incoming data.