Boston Fed’s Collins warns rates may need to rise if inflation lingers

Boston Fed President Susan M. Collins signaled that the Federal Reserve could still raise interest rates if inflation does not keep fading, a warning that would ripple through mortgages, credit cards, car loans and business borrowing if policymakers decide the fight is not over.

Speaking in Boston at the Boston Economic Club and during a fireside chat, Collins said a rate hike is not her base case. She still sketched a path in which further tightening would be needed to make sure inflation returns durably to the Federal Reserve’s 2% goal, measured by the personal consumption expenditures price index. That matters because even a small move higher from today’s already restrictive stance would reinforce pressure on household financing costs at a time when many borrowers are still adjusting to years of elevated rates.

The message landed against a stubborn inflation backdrop. At the Federal Open Market Committee’s April 28-29 meeting, officials left the federal funds target range unchanged at 3.50% to 3.75%, in an unusually divided decision that drew four dissents. Collins is not a voting member of the 2026 committee, but her comments add weight to the view that officials are not ready to signal an easy pivot toward cuts. For consumers, that means mortgage rates could stay higher for longer, credit card balances would remain expensive to carry, and auto loans would keep weighing on monthly budgets. For employers, tighter policy would tend to slow hiring plans, cool wage growth and make financing expansions harder.

Collins tied part of the inflation risk to the war in the Middle East, saying the longer the conflict lasts, the greater the danger, especially for prices. The Boston Fed said she warned that a prolonged conflict could weigh on global supply chains, intensify inflationary pressure and spill over into the real economy. That is a familiar central bank dilemma: energy shocks can lift prices quickly, but if they last long enough, policymakers may choose to lean harder against them rather than look through the spike.

Her caution comes as inflation expectations remain above target. The St. Louis Fed’s 5-year, 5-year forward inflation expectation rate stood at 2.24% on May 13, still suggesting investors see inflation running a bit hot over the longer haul. Collins also said the Fed’s slightly restrictive stance should probably stay in place for some time, a reminder to markets that bond yields, stocks and rate-sensitive sectors may have to absorb a longer period of restraint even if the next move is not immediate.