Boston Federal Reserve President Susan Collins said Thursday the central bank may hike interest rates further and will likely need to keep rates elevated for an extended period even if it does decide against another increase in the coming months.
"We may need additional increments, and we may be very near a place where we can hold for a substantial amount of time," she told Yahoo Finance in an exclusive interview from Jackson Hole, Wyo., where Fed officials are attending their annual economic symposium.
Read more: What the Fed rate hike means for bank accounts, CDs, loans, and credit cards
The question Fed Chair Jerome Powell and other Fed officials face this week is whether inflation's downward trajectory is convincing enough to take a more measured pace with interest rate hikes, or whether a more aggressive approach is warranted to get inflation close to the Fed's target of 2%.
Collins, who does not have a vote on monetary policy decisions this year, made it clear in her interview Thursday that the Fed has "more work to do" to get inflation down to its 2% target and that more rate hikes are possible if the data supports such a move.
"I think it is going to take some time to really be sure we are seeing sustained realignment of demand and supply that is needed in order to bring inflation back on a path that will get back to 2%," she said.
Last month, Fed officials raised interest rates for the 11th time since March 2022 in what may be the first of two rate hikes that officials have penciled in for the remainder of the year.
Inflation has cooled on a headline basis from a peak of over 9% last June to just over 3% this July. But stripping out volatile food and energy prices, inflation sits over 4% — double the central bank’s inflation target of 2%.
"I do think it’s extremely likely that we will need to hold for a substantial amount of time but exactly where the peak is, I would not signal right at this point,” Collins said. "We may be near but we may need to increase a little bit further."
Many observers expect Powell in a highly anticipated speech Friday to reiterate the Fed’s commitment to bringing down inflation. The question is whether he’ll hint he’s encouraged enough by the data to move into an extended hold or whether he signals another move to go.
In his last comments after the Fed’s policy meeting in July, Powell wasn’t yet sufficiently convinced about inflation to let off the gas, and said he needed to see leftover distortions from the pandemic on supply and demand ease.
"Policy has not been restrictive for long enough to have its full desired effects," Powell said at a press conference on July 26.
"So we intend to keep policy restrictive until we’re confident that inflation is coming down sustainably to our 2% target, and we’re prepared to further tighten if that is appropriate."
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