Boston Fed's Collins warns Iran conflict will keep rates elevated into 2027

Boston Federal Reserve Bank President Susan Collins said on Wednesday that the Iran conflict is fuelling persistent inflation through energy-price shocks and that the central bank should keep interest rates on hold and adjust its communications to push back against market expectations of rate cuts this year.

Collins, speaking on Bloomberg’s “Big Take” podcast on 7 May, aligned herself with the three regional Fed presidents who dissented at the Federal Open Market Committee’s 29 April meeting. She told host David Gura and Bloomberg reporter Maria Eloisa Capurro that she was “strongly supportive” of the decision to leave the federal funds rate at 3.50 to 3.75 per cent. But she said she preferred to alter the post-meeting statement so it was not “as closely aligned with language that has been associated with the presumption that the next move will be a cut.”

The remarks strengthen the hawkish camp on a committee that just produced the first four-dissent vote in more than three decades. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan each released independent statements on 1 May arguing the Fed should be explicit that its next monetary-policy step could be a rate increase rather than a cut. They cited inflation risks from the Middle East.

Collins is not a voting member of the FOMC in 2026, but her intervention matters because it comes from a centrist voice within the central bank. She named the persistence of inflation as her primary concern. Supply-chain disruptions from the Iran conflict could push price increases beyond energy into food and other categories, she said.

“It is more the persistence of inflation that I am focused on,” Collins said. “I do think that there are scenarios in which it would be important to strongly consider a hike,” she added. She described that as not her baseline expectation.

The inflation picture

The Bureau of Economic Analysis reported on 30 April that the headline Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, rose to 3.5 per cent in March from 2.8 per cent in February. Core PCE, which strips out food and energy, climbed to 3.2 per cent from 2.9 per cent.

Economists at Nationwide expect inflation to peak around 4.5 per cent this northern summer, more than double the Fed’s 2 per cent target, according to The New York Times. Disruptions to oil supply routes and production around the Strait of Hormuz have pushed petrol prices sharply higher, squeezing household budgets and widening the spending gap between higher- and lower-income Americans.

A study by Federal Reserve economists, cited by TheStreet’s Mary Helen Gillespie, examined petrol consumption during March 2026, the first full month of the Iran war, and found the highest recorded gap in US petrol spending. “Price levels are very high,” Collins said. “One of the reasons I am very concerned about inflation is recognising the impact it has on people’s lives.”

Collins noted that global markets have shown resilience, supported by strong corporate earnings and developments in artificial intelligence. But employment stability does not override the inflation mandate. She described the labour market as in an “unusual balance” of low unemployment paired with low hiring rates, while consumer spending stays resilient.

A divided committee

The FOMC’s 8-4 vote on 29 April was the committee’s third consecutive pause after it cut rates by 75 basis points across the final three meetings of 2025, when a softening labour market drove the easing. Outgoing Fed Chair Jerome Powell called the economy “resilient” at his post-meeting press conference and said “people are not saying that we need to hike now.” But the statement itself noted that “developments in the Middle East are contributing to a high level of uncertainty.”

The dissenting presidents objected to two words in the statement: “additional adjustments.” In the Fed’s internal lexicon, those words signal a presumption that the next move will be a cut. Collins’s public criticism of that phrasing, delivered on a financial-news podcast with wide reach, points to a debate shifting toward the hawks.

The Fed’s semi-annual Financial Stability Report, published 8 May, flagged oil shocks and geopolitical risks as the top threats to US financial stability.

The lone dovish dissenter on 29 April was Fed Governor Stephen I. Miran, who preferred a 25-basis-point cut. Miran will be replaced later this month by incoming Fed Chair Kevin Warsh, whose Senate confirmation is expected the week of 11 May. Warsh, a former Fed governor, has pledged a “regime change” at the central bank but has not specified how his policy approach will differ from Powell’s.

What’s next

The next FOMC meeting is scheduled for 16 to 17 June. Before then, the committee will receive one more PCE print, two Consumer Price Index reports and the April employment data due 8 May. Economists expect that report to show a slowdown in payroll growth with the unemployment rate holding at 4.3 per cent.

Traders are pricing the next rate cut for mid-to-late 2027, according to the CME FedWatch Tool. The Kalshi prediction market assigns a 44 per cent probability to a rate hike before July 2027. Bank of America economists have said they see no cuts until the second half of 2027, a forecast that Collins’s remarks support.

For consumers and businesses, borrowing costs on credit cards, mortgages and business loans are not coming down soon. Collins said interest rates are likely to remain on hold “for a longer time period, with further easing further down the road,” the clearest signal yet that the 2025 easing cycle is over.