Boston Fed President: "Prices Are Too High"... Leaves Door Open for September Rate Hike

Rising Cost-of-Living Pressures for Low-Income Households
"Energy Prices Are a Major Burden"
CPI Slows to 3.4% in July
Pressure for Additional Tightening Eases Modestly

Susan Collins, President of the Federal Reserve Bank of Boston, stated that she could support a rate hike as early as next month if inflation does not moderate sufficiently. She pointed out that the war in Iran has led to rising energy prices, intensifying cost-of-living pressures particularly among low-income households. However, after Collins's remarks, data showed that the U.S. Consumer Price Index (CPI) growth rate slowed in July, which is expected to somewhat reduce the need for the Federal Reserve (Fed) to raise interest rates in September.

Federal Reserve (Fed). Reuters Yonhap News

In an interview with the Financial Times (FT) published on the 12th (local time), President Collins stated she is prepared to raise interest rates if future economic conditions require additional tightening. She said, "I believe that in the coming months, economic circumstances could call for a more restrictive policy," emphasizing that she would support a rate hike in such a scenario.

She particularly noted that cost-of-living pressures are increasing for low- and middle-income Americans due to rising prices. Collins shared that whenever she meets with business leaders, inflation is a constant topic of concern, and she is hearing reports more frequently than before that low- and middle-income households are struggling to keep up with living expenses.

She explained that in the New England region, the burden of energy prices is notably high. New England relies more on heating oil during winter and uses oil as a supplementary fuel in electricity generation compared to other parts of the U.S. As a result, according to FT, the region is feeling the impact of rising international oil prices following the war in Iran more acutely.

Following the war in Iran, crude oil shipments through the Strait of Hormuz have plummeted, creating upward pressure on energy-related prices. Combined with tariff hikes and the additional inflationary effects from increased artificial intelligence (AI) investment, concerns about inflation in the U.S. have resurged.

President Collins supported holding interest rates steady at last month’s Federal Open Market Committee (FOMC) meeting, judging the current policy rate to be at a "modestly restrictive level."

However, she made it clear that she views inflation risks as greater than risks to the labor market. Recent U.S. employment data came in much weaker than expected, prompting speculation that the Fed may find it difficult to raise rates further. Nevertheless, Collins cautioned against reading too much into a single month’s jobs report.

She stressed that private sector employment is still rising and that the unemployment rate has remained relatively stable, describing the current labor market as “quite mixed.” Collins explained that with the supply of labor increasing at a slower pace, it is possible to see monthly job growth turn negative or, conversely, to see employment increase by more than expected during certain periods.

Still, President Collins emphasized, “Prices are too high,” and at this time, she is monitoring inflation risks more closely.

Meanwhile, according to the U.S. Department of Labor, the July Consumer Price Index (CPI) rose by 3.4% year-over-year, which is a smaller increase than the 3.5% recorded in June. The core CPI, which excludes volatile food and energy prices, also decreased from 2.6% in June to 2.5% in July.

This content was produced with the assistance of AI translation services.