Feds Collins:It’s possible the Fed will need to hike rates to cool inflation pressures
At a Glance
The desk interprets recent comments from Fed Governor Susan Collins as indicative of a more hawkish stance regarding interest rates, emphasizing the need for sustained restrictive policy to combat persistent inflation pressures. Per the full note source, Collins highlighted that the Fed may need to hike rates further to achieve its 2% inflation target, particularly in light of ongoing geopolitical tensions that could exacerbate inflation. This aligns with our view that the Fed is unlikely to pivot towards rate cuts in the near term, despite hopes for easing later this year. The broader market consensus appears to be split, with some firms anticipating a more dovish approach as inflationary pressures potentially cool in the coming months.
Full Analysis
What the desk is arguing
The desk frames this as a clear signal that the Federal Reserve is prepared to maintain or even increase interest rates to manage inflation risks. Collins' remarks suggest that the Fed's current policy is not only well-positioned but may need to remain restrictive for an extended period due to persistent inflation concerns.
Supporting this view, Collins expressed worry that inflation might not significantly decrease until 2027, indicating a long road ahead for monetary policy normalization. The potential for renewed rate hikes, especially in the context of a prolonged Middle East conflict, underscores the Fed's cautious approach to easing policy too quickly.
Where it sits in our coverage
Our consensus target for USD/EUR stands at 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which shares a similar hawkish outlook, while bofa presents a more cautious stance at the lower end of the spectrum. The desk's call is positioned at the upper bound of the consensus range, reflecting a more aggressive stance on potential rate hikes.
How other firms see it
Firms like jpmorgan and citi are aligned with the desk's perspective, emphasizing the need for continued vigilance against inflation. Conversely, bofa and goldman sachs are more skeptical, suggesting that inflation may cool sooner than anticipated, allowing for potential rate cuts.
Watch the USD/EUR trajectory closely, as it is likely to mirror the Fed's rate path. Additionally, the performance of the DXY index will be crucial in assessing market sentiment regarding the Fed's monetary policy direction.
What the calendar says
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From the original
Right now Fed policy well positioned to deal with risks Expects Fed will need to keep restrictive policy for some time It’s possible US central bank will need to hike interest rates to cool inflation pressures Essential for Fed to do what’s needed to get inflation to 2% Hopes eco
Related speeches
4 itemsICYMI - Boston Fed's Collins raises prospect of rate hikes if inflation broadens
The desk interprets Boston Fed President Susan Collins' recent comments as a significant signal that the Federal Reserve may need to consider rate hikes if inflationary pressures broaden. Per the full note [source], Collins highlighted rising inflation expectations and the impact of tariff pass-through as critical factors that could necessitate a shift in monetary policy. This perspective aligns with the growing concern that inflation could persist longer than initially anticipated, particularly as household and business inflation expectations have reached the upper end of their historical ranges. The desk notes that Collins' call for a more neutral stance in Fed communications could lead to a reassessment of rate-cut timelines currently priced into the market, which could have broader implications for risk assets and the dollar.
Fed's Collins: I still expect interest-rate cuts down the road
The desk interprets Fed Governor Collins' recent comments as indicative of a potential shift towards interest rate cuts, albeit with caution due to rising inflation risks. Per the full note [source], Collins emphasized a cutting bias while acknowledging that rates may remain on hold longer than previously expected. This nuanced stance suggests a growing divergence among Fed officials, especially with non-voting members like Collins expressing a more neutral outlook. The desk sees this as a precursor to a broader pivot in monetary policy, contingent on geopolitical developments and economic data.