Boston Fed President Susan Collins said U.S. inflation is unlikely to show clear improvement this year and may not cool in a meaningful way until 2027. She also said the Federal Reserve could still raise rates again if inflation remains sticky, while describing the current policy stance as “well positioned.”
The remarks came after the release of U.S. April CPI and PPI data, which added pressure to expectations for rate cuts. Collins pushed back on hopes for easier policy, arguing that interest rates may need to stay at restrictive levels for a longer period in order to bring prices under control. That is the “higher for longer” message markets have been trying to price in.
Rate hikes are still a live option
Collins did not frame the Fed’s next move as simply staying on hold. She said that if inflation continues to prove sticky, policymakers may even need to hike again. A short line, but one with a clear signal for markets.
At the same time, she said current monetary policy is in a good position to respond to existing risks. The message was straightforward: the Fed is not in a rush to pivot, especially while inflation remains the central concern and an early easing could risk reigniting price pressures.
Middle East tensions and energy shocks complicate the outlook
On what could keep inflation elevated, Collins pointed to geopolitical instability, especially energy shocks tied to ongoing tensions and conflict in the Middle East. In her view, those forces make inflation expectations harder to anchor and leave the Fed facing a more difficult policy trade-off.
She said a prolonged conflict could lift inflation risks while also threatening economic growth, sharpening the dilemma for policymakers. Collins also noted that the U.S. economy is more resilient than it was in some past crises and is better able to absorb swings in energy prices.
Room for cuts remains, but not on the timeline markets want
Collins did not rule out cuts altogether. She said there is still room for rate reductions in the future, but not soon. Her assessment was that inflation is unlikely to ease materially in 2026, with meaningful cooling more likely in 2027.
For risk assets, that changes the rate narrative. Optimism around cuts this year takes another hit, and markets now have to weigh a longer stretch of tight financial conditions against the possibility that the Fed may need to tighten again.