Boston Fed's Collins backs rate hike, warns inflation could linger above 2%

Collins' case for tighter policy

Susan Collins threw her weight behind last week's increase, saying it helps nudge inflation toward the central bank's 2% aim. In a LinkedIn post on Tuesday, she wrote, "A somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target." She added that with the job market on firmer ground, policy can zero in on restoring price stability "especially after five and a half years of too high inflation."

Collins is not a voter on policy this year, and she now sees an "increased likelihood" of outcomes where inflation stays "notably above 2%." In a Monday interview with the Associated Press, she said she was one of the policymakers projecting a second hike before the year ends, and she anticipated rates would remain unchanged in 2027.

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What the Fed signaled and why it matters

Policymakers were unanimous in lifting the benchmark rate by a quarter percentage point. Their updated projections, at the median, anticipate one more quarter-point increase this year. Collins indicated that, in 2027, she expects no change in rates. Once more, Chairman Kevin Warsh declined to file rate projections, and he said last week's move takes a "dose of accommodation" out of the economy.

For your wallet, the takeaway is simple: officials are open to tightening again this year, which keeps borrowing costs and savings yields in play as the outlook evolves.

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