Fed's Collins warns inflation could be 'notably' higher after backing rate hike
There is "an increased likelihood" of inflation staying "notably" above the Federal Reserve's 2% target, Boston Federal Reserve President Susan Collins said.
The comments from Boston Fed President Susan Collins suggest that the central bank's inflation concerns are still top of mind, even as they move forward with rate hikes. Collins' warning that inflation could stay "notably" above the 2% target implies that the Fed may need to maintain a hawkish stance for longer than previously thought. This could have implications for the US dollar, as higher interest rates tend to attract foreign investors and strengthen the currency.
The Fed's rate hike cycle has been a key driver of dollar strength this year, and Collins' comments may reinforce expectations of further rate increases. However, if inflation remains stubbornly high, it could also raise concerns about the potential for stagflation or an economic downturn. Currency markets will be closely watching the Fed's next moves and any signs of how the central bank plans to balance its dual mandate of maximum employment and price stability.
Looking ahead, traders will be focused on the upcoming US inflation data and the Fed's September policy meeting. Any surprises on the inflation front or hints about the pace of future rate hikes could lead to significant dollar movements. The market is currently pricing in a roughly 50% chance of a 75 basis point rate hike in September, with the remainder expecting a 50 basis point increase. Collins' comments may add to the case for a larger rate hike, but much will depend on the incoming economic data.
Originally reported by cnbc.com. CurrencyNews adds analysis for finance & markets readers.