Boston Fed President Susan Collins confirmed her support for last week’s 25-basis-point rate hike, warning that the risk of inflation staying durably above the 2% target has materially increased. Her comments, posted on LinkedIn and shared with the Associated Press, sketch a more restrictive monetary stance than some of her colleagues have signaled.
🔑 Key takeaways
- The Fed lifted its policy rate to 3.75%–4.00%, the first hike in three years.
- Collins sees a higher probability of inflation remaining above 2% over time.
- CME FedWatch prices a 53.1% chance of another 25 bp hike in October.
- Chicago Fed President Austan Goolsbee says more than one hike may be needed.
- Core PCE (Personal Consumption Expenditures, the Fed’s preferred inflation gauge) stood at 3.7% in June 2026, down from 4.1% in May.
Collins delivers a hawkish vote of confidence
In a LinkedIn post reported by Reuters, Susan Collins offered one of the most explicit justifications yet for the ongoing tightening cycle. “Given all the available information, I now see an increased likelihood of future scenarios in which inflation remains meaningfully above 2%,” she wrote. She stressed that the labor market remains on solid footing, allowing the central bank to focus on restoring price stability after five-and-a-half years of above-target inflation.
“A somewhat more restrictive federal funds rate will help ensure that inflation returns durably to our goal.”
Susan Collins, President of the Boston Fed
Collins told the Associated Press that she had not seen “the progress on inflation I had been hoping for.” Although she does not hold a voting seat on the FOMC (Federal Open Market Committee, the Fed’s rate-setting body) in 2026, she will regain voting rights in 2028.
Geopolitics and jobs: the twin pillars of her reasoning
Two factors drove Collins’s analysis. First, the resumption of fighting in the Middle East in August, particularly the escalation between the United States, Israel and Iran, which has applied upward pressure on energy prices. “Geopolitical developments suggest we may continue to see additional pressures on the energy side,” she noted.
Second, the resilience of the labor market. Hiring remains robust, giving the economy room to absorb higher rates. Businesses in her district — covering Massachusetts, Connecticut, Maine, Rhode Island and Vermont — continue to flag elevated costs and anticipate passing them through to consumers, a classic signal of second-round effects (wage-price spirals where initial shocks feed into broader inflation).
| Indicator | Value | Period |
|---|---|---|
| Fed policy rate | 3.75% – 4.00% | Sep 2026 |
| Odds of 25 bp October hike (CME FedWatch) | 53.1% | Sep 2026 |
| Core PCE YoY | 3.7% | Jun 2026 |
| Core PCE YoY | 4.1% | May 2026 |
| Fed PCE target | 2.0% | — |
Goolsbee more aggressive, Warsh more conciliatory
Chicago Fed President Austan Goolsbee struck an even more cautious tone on Monday. He argued the Fed will likely need to inflict economic pain to bring inflation back to target. “The only way to bring inflation down is to raise rates and close the gap between supply and demand. Forcing inflation back to target in the short term means pushing employment below target. That is going to be painful.”
Goolsbee added that a single hike may not be enough if inflation proves demand-driven: “If we get evidence that convinces us inflation is coming from demand, then one hike probably won’t be enough.” He also pointed to the surge in data-center investment for artificial intelligence, which he sees as fueling aggregate demand alongside supply-side oil shocks.
This stance clashes with Fed Chair Kevin Warsh, who told reporters last week: “I do not believe we need to harm labor markets to achieve our goal.” The scenario Warsh is betting on — a return to the 2% PCE target without a meaningful rise in unemployment, as occurred in 2022-2023 — therefore amounts to an optimistic wager.
The ECB charts the same course
Across the Atlantic, ECB Chief Economist Philip R. Lane delivered a convergent message to Swiss newspaper Le Temps. He flagged a “second wave of energy-price increases” likely to keep inflation “higher for longer.” The ECB expects upward pressures on food, energy in the broader sense (including electricity), and goods in general.
This implicit coordination between the two major central banks reinforces the case for a durably restrictive policy mix (combination of monetary-policy tools) in the second half of 2026, with direct implications for risk assets, long-duration bonds (whose prices fall as rates rise) and the US dollar.
Conclusion: a tense autumn ahead
FOMC consensus appears to be drifting toward a persistent hawkish bias (predisposition toward tighter policy): Collins justifies the hike, Goolsbee calls for more, and CME FedWatch gives a slim majority (53.1%) to another 25 bp move as early as October. The central case combines inflation that grinds lower only slowly (PCE at 3.7% in June, still 1.7 points above target), a robust labor market, and geopolitical tensions reignited by the collapse of the US-Iran ceasefire.
For markets, three scenarios are taking shape. The soft-landing scenario, championed by Warsh, relies on disinflation without pain. The base-case scenario prices in one additional October hike and a plateau at 4.00-4.25%. The hawkish scenario, favored by Goolsbee, would entail several additional hikes and a rise in unemployment — with downside risk for equity indices, long-duration Treasuries and private credit. The August PCE release, due in late September, will be the next decisive data point.
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This article is published for informational and educational purposes only. It does not constitute investment advice. Do your own research (DYOR) before making any decision.
