WASHINGTON—The Federal Reserve may need to raise interest rates soon unless upcoming data show inflation is continuing to decline, Boston Fed President Susan Collins said Tuesday, according to Reuters.
Collins said the Fed’s current policy rate should continue putting downward pressure on prices, aided by higher longer-term bond yields, but warned policymakers cannot wait indefinitely for inflation to return to the central bank’s 2% target.
“Should evidence of sustained inflation progress not materialize, I believe it will be appropriate to tighten policy soon to ensure we deliver price stability in a reasonable time frame. ... Concerns about high prices are pervasive in my conversations with stakeholders across New England,” Collins wrote in comments posted on the Boston Fed’s website, Reuters reported. Economists polled by Reuters expect Wednesday’s data to show the core Personal Consumption Expenditures price index rose 3.3% from a year earlier in July, unchanged from June and well above the Fed’s target.
The Fed has held its benchmark rate at 3.5% to 3.75% since December as officials wait for inflation to ease, Reuters noted. Collins said she still expects gradual disinflation but is concerned that, after inflation has remained above target for more than five years, continued misses could alter consumer expectations and make price stability harder to restore. Fed Chairman Kevin Warsh is scheduled to speak Thursday at the central bank’s annual Jackson Hole symposium amid disagreement among policymakers over whether additional rate increases are needed.