Boston Fed's Collins Signals Possible Rate Hike as 5 Years of Above-Target Inflation Erode Patience
Updated
Updated · Fortune · May 17
Boston Fed's Collins Signals Possible Rate Hike as 5 Years of Above-Target Inflation Erode Patience
5 articles · Updated · Fortune · May 17
Susan Collins said more than five years of above-target inflation have left her less willing to “look through” another supply-driven price spike, and she can envision policy tightening if needed to return inflation to 2%.
The shift reflects concern that repeated disruptions can keep inflation elevated long enough to change household and business price-setting behavior, making the usual central-bank response to temporary shocks less effective.
Chris Waller made a similar case last month, warning that “one transitory shock after another” requires greater vigilance after the Fed’s 2021-2022 mistake of treating inflation as temporary.
Patrick Harker argued the problem is often not random supply shocks but “supply coercion” — from Russia’s gas squeeze to Iran’s closure of the Strait of Hormuz, which has halted about one-fifth of global oil flows — leaving the Fed with limited tools.
Is the Fed's inflation-fighting toolkit obsolete in an era of weaponized supply chains?
Beyond interest rates, what new economic defenses can nations build against state-sponsored coercion?
U.S. Inflation Surges Above 3.5%: Fed Signals Prolonged High Rates as Geopolitical Risks Mount
Overview
As of May 2026, the Federal Reserve faces a challenging environment shaped by persistent inflation and rising geopolitical tensions, leading to a notable shift in its policy outlook. Boston Fed President Susan Collins expects inflation to rise above 3.5% in the near term before easing to around 3% by year-end, but she also warns of possible scenarios with even higher inflation or weaker labor markets. In response, the Fed is committed to a vigilant and flexible approach, maintaining a slightly restrictive stance to address ongoing risks and uncertainties in the economy.