Boston Fed's Collins warns on rates

Susan Collins said on May 13 that the Federal Reserve may need to keep interest rates at restrictive levels for longer and could raise them further if inflation pressures do not ease. The Boston Federal Reserve president made the remarks in prepared comments for the Boston Economic Club and linked the policy outlook in part to the duration of the Middle East conflict. Her comments landed as Treasury yields remained elevated after a hotter-than-expected April producer price report. The two-year Treasury yield traded near 3.98% and the 10-year yield near 4.47% later that day, according to CNBC. ### What exactly did Collins say about the possibility of more rate hikes? Susan Collins said she could “envision a scenario” in which additional tightening is needed even though it is not her base case. In remarks published by the Boston Fed, she said policy is “well positioned” to respond to changes in the outlook and that maintaining a “slightly restrictive” stance for “some time” will likely be important. Reuters reported that Collins said “some policy tightening” could be needed to ensure inflation returns durably to the Fed’s 2% target in a timely way. (money.usnews.com) The Boston Fed president also said her tolerance for looking through another supply shock has diminished. Reuters reported that Collins said more than five years of above-target inflation had reduced her patience for dismissing a fresh supply-driven price shock, and that keeping inflation expectations anchored is critical now. (bostonfed.org) ### Why did the Middle East conflict feature so prominently in her remarks? Collins said on May 13 that the length of the war in the Middle East is an important variable for the U.S. policy outlook. Reuters reported that she said the longer the conflict lasts, the greater the inflation risks become, even if the U.S. economy is relatively insulated from direct energy shocks. She also said that even a swift resolution would still leave global supply chains under pressure. (money.usnews.com) The Boston Globe separately reported that Collins expected little to no progress on lowering inflation this year even if the conflict is resolved relatively soon. Reuters also reported that she said inflation might not begin to ease meaningfully until 2027. ### What did the April PPI report show? The Bureau of Labor Statistics said the Producer Price Index for final demand rose 1.4% in April from the prior month and 6.0% from a year earlier. (money.usnews.com) The agency said prices for final demand services increased 1.2% and goods rose 2.0% in the month. BLS said the next PPI release, for May 2026, is scheduled for June 11 at 8:30 a.m. Eastern time. CNBC reported that the April increase was far above the 0.5% consensus forecast and marked the biggest monthly gain since March 2022. (bostonglobe.com) That report said the inflation data helped push the 10-year Treasury yield as high as 4.49% during the session, the highest level this year, while the two-year yield traded around 3.981%. (bls.gov) ### How are markets tying Collins’ comments to the inflation data? Treasury traders were already repricing the rate path after the April PPI report before Collins’ remarks reinforced the possibility of a longer period of restrictive policy. CNBC reported that yields rose as investors digested the stronger-than-expected wholesale inflation data. Reuters reported that Collins said the Fed may need to raise rates if inflation pressures do not abate, a formulation that fit the market’s more hawkish reading of the week’s inflation numbers. (cnbc.com) The Federal Open Market Committee left its benchmark rate unchanged at 3.50% to 3.75% at its late-April meeting, Reuters reported. Collins is not a voting member of the rate-setting committee this year, but her comments add to the public debate over whether the next move remains on hold or could shift back toward tightening if inflation stays high. (cnbc.com) ### What should investors and readers watch next? June 11 is the next dated milestone in this story because the Bureau of Labor Statistics is scheduled to publish the May Producer Price Index that morning. Another key reference point will be future remarks from Federal Reserve officials on whether April’s inflation readings and energy-related price pressures are proving temporary or persistent. Collins’ own framework, as reported by Reuters, is that the duration of the Middle East conflict remains central to that judgment. (money.usnews.com) (bls.gov)