Market News

Key Points

• Boston Federal Reserve President Susan Collins says she supported last week’s interest rate hike and sees inflation being “notably” higher.
• She wrote on LinkedIn that there are “upside risks to inflation” and “stronger overall” labor market conditions.
• European Central Bank’s Philip R. Lane said energy prices will keep inflation “higher for longer”

Boston Federal Reserve President Susan Collins has warned that there is “an increased likelihood” that inflation will stay “notably” above the Federal Reserve’s 2% target.

Explaining her reasoning for backing the Fed’s quarter-point interest rate hike last week, Collins wrote in a LinkedIn post that a “somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target.”

Collins takes part in FOMC meetings and helps shape the discussion, but is not currently a voting member. In 2025 — when it was the Boston Fed’s turn to vote on the annual rotation — she voted with the majority at all eight FOMC meetings, backing a hold in July, and then quarter-point cuts in September, October and December.

“Given all the available information, I now see an increased likelihood of future scenarios in which inflation remains notably above 2 percent,” Collins wrote.

“While the upside risks to inflation have increased, labor market conditions seem a bit stronger overall, and the unemployment rate remains low.”

“With the labor market on a better footing, monetary policy can focus on a timely return to price stability, especially after five and a half years of too high inflation.”

Markets are broadly split on the likelihood of another Fed rate hike at the FOMC meeting in October, with 53.1% currently expecting another 25-basis-point increase, according to CME Group’s FedWatch tool.

Collin’s comments chime with those of European Central Bank executive board member Philip R. Lane, who said on Tuesday that a “second wave of rising energy prices” is likely to keep inflation “higher for longer.”

Lane told Swiss French-language daily newspaper Le Temps that the ECB is forecasting “upward pressure on food, energy more broadly – including electricity – and goods in general.”

“If the shock does turn out to be larger and more persistent this autumn, that will hold back the [eurozone] economy,” he added.

“Our baseline reflects the market view as captured in the price of oil and gas. The future curve for oil and gas basically points to a resolution later this year.”

“The situation won’t go back to normal, but there will be some improvement compared with the current situation. That said, there’s a lot of uncertainty around that baseline.”