Boston Fed's Collins Warns Inflation Could Stay 'Notably' Above 2% Target, Markets Split on October Hike

Since the Federal Reserve's September 16 rate hike, its first since 2023, Boston Fed President Susan Collins has said something noteworthy: she now thinks the odds of inflation staying stuck well above target have gone up, not down.

Collins laid out her reasoning in a LinkedIn post published Tuesday, September 22, explaining why she backed the Fed's quarter-point hike to a target range of 3.75% to 4%. "I now see an increased likelihood of future scenarios in which inflation remains notably above 2 percent," she wrote, according to CNBC. She said a "somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target."

Collins isn't a voting member of the FOMC this year, but she sits in on meetings and shapes the discussion. In a Monday, September 21 interview with the Associated Press, cited by financial newsletter Briefs, she said she's among the officials projecting one more quarter-point hike before year-end, with rates likely holding steady through 2027.

Markets Can't Agree on October

Traders are genuinely split on what comes next. According to CME Group's FedWatch tool, cited by CNBC, 53.1% of market participants currently expect another 25-basis-point hike at the Fed's October meeting. That's barely more than a coin flip.

Collins isn't alone globally. European Central Bank executive board member Philip R. Lane told the Swiss French-language paper Le Temps on Tuesday that a "second wave of rising energy prices" is likely to keep eurozone inflation "higher for longer," pointing to pressure on food, electricity and goods. Lane said the ECB's baseline still assumes some improvement later this year based on oil and gas futures, but added "there's a lot of uncertainty around that baseline."

The Case Against Hiking

Not everyone thinks tighter money is the right tool. Daily Signal columnist Deroy Murdock argued the Fed's September 16 hike, delivered by Chairman Kevin Warsh, mistakes an energy shock for an overheating economy. Murdock pointed to Bureau of Labor Statistics data showing gasoline prices rose 3.9% in August alone and the energy index climbed 16.3% over the prior 12 months, driven by the fallout from the Iran war and instability around the Strait of Hormuz. He noted West Texas Intermediate crude went from $66.96 a barrel in late February to $107.02 by September 15, a 59.8% jump, while core CPI excluding energy came in at just 2.5% year-over-year, close to the Fed's target. "Hiking interest rates does zippo to protect Saudi Arabia's oil pipelines," Murdock wrote, calling it "quackery."

Breitbart's Business Digest raised a similar concern before the hike, citing Moody's Analytics chief economist Mark Zandi's warning that forcing inflation down faster requires pushing growth below its potential, with real economic costs. Breitbart also noted that 10-year breakeven inflation expectations were sitting right where they were in February, before the Iran war pushed gas prices up, arguing there's no hard evidence inflation expectations are actually becoming unanchored, the scenario Fed officials cite as their main worry.

If the inflation spike is a supply shock from a war-driven oil spike rather than an overheating economy, raising borrowing costs doesn't fix the actual problem and instead squeezes households and small businesses already stretched thin.

Collins's counterargument is that the labor market has room to absorb tightening. She noted in her post that "labor market conditions seem a bit stronger overall, and the unemployment rate remains low," which she says gives the Fed cover to prioritize price stability "especially after five and a half years of too high inflation."

The Political Backdrop

President Trump reacted to the September 16 hike on Truth Social, demanding rates near 1% and arguing the U.S. has "the Best Credit in the World." That stance sits at odds with the Fed's own inflation data, which showed headline CPI at 3.4% year-over-year in August, still well above the 2% target Trump wants the Fed to effectively ignore.

Fox News contributor Lee Carter argued the deeper risk for Republicans heading into the midterms isn't the rate decision itself but what voters are feeling. She wrote that economists calling consumers "resilient" may be missing that families are absorbing higher costs because they have no choice, not because they're thriving.

The Fed's Summary of Economic Projections released alongside the September 16 hike put the median policy rate at 4.1% for this year, implying one more quarter-point move is on the table. Whether that happens at the next FOMC meeting will depend heavily on incoming inflation and jobs data between now and then, data that, per Murdock's numbers, is still being driven more by the price of oil than by anything happening in the labor market.