Fed's Collins warns inflation could stay 'notably' above 2% after backing rate hike

Boston Federal Reserve President Susan Collins says she supported last week's quarter-point interest rate hike and now sees an increased likelihood that inflation stays "notably" above the Fed's 2% target.

Writing on LinkedIn, Collins pointed to "upside risks to inflation" and labour market conditions that look "a bit stronger overall", with the unemployment rate still low.

Why Collins backed the hike

Collins said a "somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target."

"Given all the available information, I now see an increased likelihood of future scenarios in which inflation remains notably above 2 percent," she wrote.

"While the upside risks to inflation have increased, labor market conditions seem a bit stronger overall, and the unemployment rate remains low."

She added that with the labour market on a better footing, monetary policy can focus on a timely return to price stability, "especially after five and a half years of too high inflation."

Collins takes part in Federal Open Market Committee meetings and helps shape the discussion, but is not currently a voting member. In 2025, when it was the Boston Fed's turn to vote on the annual rotation, she voted with the majority at all eight FOMC meetings, backing a hold in July and quarter-point cuts in September, October and December.

Markets split on October

Traders are divided on whether the Fed hikes again at its October meeting. About 53.1% expect another 25 basis point increase, according to CME Group's FedWatch tool.

ECB's Lane sees 'higher for longer'

Collins's comments echoed those of European Central Bank executive board member Philip R. Lane, who said a "second wave of rising energy prices" is likely to keep inflation "higher for longer."

Lane told Swiss French-language daily Le Temps that the ECB is forecasting "upward pressure on food, energy more broadly, including electricity, and goods in general."

"If the shock does turn out to be larger and more persistent this autumn, that will hold back the eurozone economy," he said.

"Our baseline reflects the market view as captured in the price of oil and gas. The future curve for oil and gas basically points to a resolution later this year."

He added that the situation will not return to normal, but there will be some improvement compared with the current situation, with a lot of uncertainty around that baseline.

What it means for Nigeria

Two major central banks flagging stubborn inflation keeps the pressure on global interest rates and supports the dollar. That usually means tighter external conditions for emerging market currencies, including the naira, and higher dollar funding costs for Nigerian businesses that import or borrow abroad.