Fed's Collins Says PCE Doesn't Alter Restrictive Policy View

Boston Fed President Susan Collins, speaking ahead of the Jackson Hole symposium, said the recently released core PCE report has not shaken her assessment of the current monetary policy stance. She continues to believe that the federal funds rate in a restrictive range of 3.50% to 3.75%, combined with the recent rise in long-term Treasury yields, will keep downward pressure on prices and gradually bring inflation back down. According to a Reuters survey, the upcoming July core PCE annual rate is expected to hold at 3.3%, still well above the Fed's 2% target.

**Baseline Scenario and Preconditions for Inflation Easing**

Collins' baseline assessment rests on a set of preconditions. She noted that the pass-through effects of previously imposed tariffs have largely been absorbed, and the impact of oil price increases on inflation may gradually fade. However, achieving this path depends on no large-scale new tariffs in the future and an easing of geopolitical conflicts. She cautioned that a fresh round of supply shocks or stronger-than-expected economic activity still pose upside risks to inflation, while continued expansion of AI infrastructure investment is also pushing up core goods prices.

**"Patience" Is Not Unlimited, Rate Hike Option Is Clear**

Despite being somewhat encouraged by the modest improvement in price pressures, Collins stressed that single-month data are volatile and it is too early to confirm the persistence of the improvement trend. She specifically warned that, given inflation has exceeded the target for more than five years, the Fed cannot keep rates unchanged indefinitely. If upcoming data fail to provide clear evidence of sustained inflation improvement, then tightening monetary policy as soon as possible would be appropriate, to prevent prolonged high prices from eroding consumer inflation expectations and making it harder to restore price stability. Market attention is now shifting to the Fed chair's keynote speech at the Jackson Hole annual meeting.