Fed's Collins says she supported rate hike, warns of elevated inflation risks

Boston Federal Reserve President Susan Collins wrote on Tuesday that she supported the US central bank's decision last week to raise interest rates in the face of risks that future inflation will be above the 2% target.

"I now see an increased likelihood of future scenarios in which inflation remains notably above 2%," Collins wrote on LinkedIn. "With the labor 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," she said. "A somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target."

The Fed last week raised its interest rate target by a quarter of a percentage point to the 3.75%-4.00% range in an effort to curb price pressures. Policymakers also penciled in another rate increase before the year is out, although Fed Chairman Kevin Warsh, who is averse to providing guidance about future monetary policy, did not affirm that Fed projection.

Collins, who is not a voting member of the rate-setting Federal Open Market Committee this year, did not say in her posting if she wants rates to go up again.

The current outlook for the Fed is particularly challenging because much of the upward drift in price pressures is from supply shocks, such as the US-Israeli war with Iran, that are hard to counter with tighter monetary policy. The persistence of inflation above the 2% target, however, has pushed Fed officials to move away from looking through what would have once been viewed as transient hits to inflation.