Boston Fed President Susan Collins says renewed fighting in the Middle East pushed her to back last week's rate hike to about 3.9% and she now pencils in a second increase this year. Chicago Fed President Austan Goolsbee warns persistent supply shocks could force even more hikes, a view that puts him at odds with Fed Chair Kevin Warsh over how much labor-market pain policy should tolerate.
Boston Fed President Susan Collins said the renewal of fighting in the Middle East in August was a key reason she supported last week's rate rise to about 3.9%, telling AP she has pencilled in a second hike this year before rates hold steady in 2027.
Collins cites the Iran war and sticky costs
Collins said she has not seen the inflation progress she was hoping for, and that geopolitical developments could keep adding pressure on energy prices. She pointed to a higher likelihood that inflation stays stuck above the Fed's 2% target, which the central bank has not hit in more than five years.
Businesses across her district — Massachusetts, Connecticut, Maine, Rhode Island and Vermont — remain worried about high costs, she said, and many expect to pass those costs on to customers, which could lift measured inflation.
Goolsbee sees a harder trade-off
Chicago Fed President Austan Goolsbee, speaking in London, offered a more pointed view. He argued that persistent supply shocks, including higher oil prices tied to the Iran war and tariffs, leave the central bank little choice but to raise rates, even though policymakers would normally wait for such shocks to fade.
Goolsbee said higher rates are needed to narrow the gap between supply and demand, which would mean employment falls below target — a painful outcome. That stance contrasts with Fed Chairman Kevin Warsh, who said last week he did not believe the labor market needed to be harmed to meet the Fed's goals. AP noted that when the Fed raised rates sharply in 2022 and 2023, inflation fell without a significant rise in unemployment.
More hikes possible if demand drives prices
Goolsbee suggested the Fed may need more than the single additional hike policymakers projected as a group last week. He pointed to signs that AI-related data center investment is adding to inflation, a sign of demand strength layered on top of the oil supply shock.
If inflation stays mostly a supply issue, one more hike could be enough, Goolsbee said; but if demand turns out to be the driver, it likely would not be. Neither official votes on rate decisions this year, though Goolsbee will vote next year and Collins in 2028.
Source: The Associated Press
Trading involves risk.
Risk Disclaimer
