Boston Fed President Susan Collins, a 2028 FOMC voting member, said late Tuesday that she leans toward supporting further interest rate hikes this year to guard against the heavy energy cost pressures stemming from geopolitical turmoil, as well as tariff policies and the AI investment wave that are increasingly entrenching inflation trends, according to Zhitong Finance.
Her latest views and stance echo the overall monetary policy positions of New York Fed President Williams 鈥?the Fed's number three official 鈥?and Cleveland Fed President Hammack, a 2026 FOMC voting member, namely that one more rate hike this year may be appropriate.
Collins stated that to help curb inflation, interest rates may need to be raised further before the end of the year. "I currently also expect that a modest further rate hike before year-end will be appropriate to ensure inflation returns to the FOMC's 2% target in a timely and sustained manner," Collins said in prepared remarks for a banking conference hosted by the Boston Fed this week.
Collins cautioned that her judgment on whether further accelerated rate adjustments are needed and their specific timing will depend on a series of subsequent economic data, including CPI and PCE inflation.
According to the Fed's September monetary policy meeting minutes, the Federal Open Market Committee announced a 25 basis point rate hike in September, which was supported by all 19 policymakers. Chair Kevin Warsh described the move as removing "a dose of accommodation" from the economy. Projections published after last month's meeting showed that the median forecast of 18 Fed officials pointed to possibly one more rate hike this year; Warsh has said he does not submit projections.
Recently, several Fed officials have said that the September rate hike allows the central bank to observe patiently before tightening monetary policy again. Fed policymakers will meet again in Washington on October 27-28 local time.
Collins said she expects the economy to continue growing and the labor market to remain near full employment. "In this scenario, continued efficiency gains will support supply-demand balance and help cool inflation, gradually bringing it back to 2%," she said in her speech. But she warned that two other scenarios are nearly as likely to occur.
AI-driven demand could trigger an extraordinary investment boom, further boosting household spending, overheating the labor market, and keeping inflation persistently above the Fed's target. Additionally, she said tariff and energy price pressures, especially if the Iran war continues, could prolong the inflation problem.
"It is important to monitor whether high inflation remains mainly confined to energy and AI computing infrastructure construction-related categories while price increases in other areas continue to slow, or whether there are signs of price pressures spreading," Collins said.
The Boston Fed president said that current economic strength does not mean the economy is overheating. "On the contrary, I believe the strength in real economic activity reflects both robust demand and increased economic production capacity from efficiency gains," she emphasized.
Collins added that the U.S. nonfarm labor market remains very stable, and accelerating productivity growth enables the economy to continue growing while maintaining supply-demand balance.
Oil Prices Remain Elevated, Hawkish Expectations for Further Fed Rate Hikes This Year Persist
On October 13, the latest pricing trends from interest rate futures traders showed that the rate futures market assigned probabilities of 19% and 88% to rate hikes in October and December, respectively. Brent crude and WTI crude oil futures closed at $105.69 and $94.14 per barrel, respectively, meaning they have surged 46% and 42% compared to before the U.S.-Iran war at the end of February. The 10-year and 30-year U.S. Treasury yields stood at 5.21% and 5.56%, respectively, surging 46 and 31 basis points from the end of August, while retreating 3 and 4 basis points on the day 鈥?highlighting that the previously sharply rising 10-year Treasury yield, known as the "anchor of global asset pricing," remains elevated and is still near its highest levels in more than two decades.
Moreover, the latest diplomatic maneuvering at the global geopolitical level has not yet translated into energy supply security. The U.S. and Iran continue to wrangle over a plan for further opening the Strait of Hormuz, Saudi Arabia and Houthi forces have escalated clashes, and on the evening of the 13th, explosions were heard near the headquarters of Saudi Aramco, one of the world's largest oil and gas giants; although Zelensky proposed talks with a U.S. envoy, his position on a "Russia-Ukraine energy ceasefire" still hinges on Russian compliance; Trump accused the Houthis of trying to drive up international oil prices and said he might ask Turkey to join operations against the Houthis.
Diesel crack spreads also remain significantly elevated, highlighting that global refined product supply pressures are still very large, and diesel is the refined product category with the most severe energy inflation globally: data disclosed by European financial giant ING shows that the ICE diesel crack spread was about $73 per barrel on October 7. Although below September's historic high near $90, it remains at its highest level in decades. On the 13th, U.S. diesel futures rose another 5%, and the pressure of logistics costs feeding through to commodity prices has not dissipated, indicating that expectations of additional supply are not yet sufficient to eliminate market concerns about tightness; moreover, the pressure has already transmitted to end users: Wood Mackenzie cited AAA data on October 13 saying that U.S. diesel retail prices were about $6.28 per gallon, up 71% year-on-year, significantly exceeding the roughly 41% increase in gasoline.
Increased crude oil supply cannot immediately translate into sufficient diesel delivery capacity. The Russia-Ukraine and Middle East conflicts have damaged refining and export links, while soaring shipping costs have hindered cross-regional allocation of raw materials; U.S. refineries are already operating at high capacity, limiting room to further fill the global gap, and there is even a mismatch where some heavy crude accumulates in the Americas while refineries in Asia and Europe scramble for suitable feedstock. Europe's release of strategic diesel inventories can ease near-term tightness but cannot replace refinery restarts and normalization of export channels, and ING also noted that forward crack spreads remain supported.
Fed Officials Are Divided on the Pace of Rate Hikes, But Financing Cost Indicators Have Already Tightened First
Collins' monetary policy stance is clearly that of a data-dependent moderate hawk 鈥?she supported the Fed's September rate hike, continues to advocate for further tightening this year, and acknowledges that productivity gains can support growth without necessarily causing overheating. She is not an FOMC voting member in 2026; the Boston Fed's next rotation voting year is 2028.
At almost the same time 鈥?the Fed's "number three" official, New York Fed President Williams, still believed on the 13th that one more rate hike this year may be appropriate, but currently sees no need for continued rate hikes in 2027. He bets that underlying inflation will continue to cool and approach 2% next year: this provides a reference for the terminal rate but does not signal a pivot to rate cuts.
Before and after Williams' speech, one Fed official spoke on each side. Chicago Fed President Goolsbee also said on Tuesday that the AI boom is starting to push up prices, inflation remains too high, and "if inflation stays persistently elevated, then I think what the Fed needs to do is very clear." Goolsbee said; Richmond Fed President Barkin said it is reasonable to take action against persistent inflation.
Fed Governor Waller, who has a permanent monetary policy vote during his term, noted on the 13th that rising yields on 10-year and longer-term U.S. Treasuries are suppressing rate-sensitive demand such as housing and autos; combined with his October 8 position that "rate hikes are still needed, but not necessarily at consecutive meetings," it can be seen that he places greater emphasis on the tightening effect already achieved by the market.
Hammack, a 2026 FOMC voting member, advocates faster, smaller, and more frequent monetary policy adjustments to prevent inflation psychology from becoming entrenched, but has not completely locked in another rate hike in October.
The 10-year U.S. Treasury is called the "anchor of global asset pricing" and a global benchmark for financing costs because of its baseline role in the dollar financing system and in the valuation of medium- and long-term cash flows. The U.S. Treasury market is massive and actively traded, and the dollar is widely used in international financing and reserves, so changes in its yields have cross-market influence 鈥?dollar corporate bonds typically reference Treasury yields of similar maturities plus a credit spread, housing mortgage rates are affected by Treasury and mortgage-backed securities pricing, and stock and real estate valuations are highly sensitive to the discount rate applied to future cash flows. When this benchmark rises while earnings and rent expectations do not improve in tandem, asset prices face downward pressure. The impact also transmits overseas through dollar financing costs, currency hedging, and cross-border capital flows; different currencies, maturities, and credit risks determine the degree to which specific assets are hit.
From a theoretical perspective, the 10-year Treasury yield is equivalent to the risk-free rate indicator r in the denominator of the DCF valuation model, an important valuation model in the stock market. If other indicators 鈥?especially cash flow expectations in the numerator 鈥?do not change significantly 鈥?for example, during earnings season when the numerator side is in a vacuum due to a lack of positive catalysts 鈥?then if the denominator level is higher or continues to operate in the historically extreme high range above 5%, the valuations of risk assets at historically high levels, such as AI-related tech stocks, high-yield corporate bonds, and cryptocurrencies, face the risk of collapse.
In the view of some analysts, energy inflation pressures from surging crude oil and diesel and other refined product prices are the core driver of the surge in long-term Treasury yields, but this round of Treasury yield spikes can no longer be explained by soaring oil prices alone 鈥?since the end of August, the 10-year real yield has risen 44 basis points, even at times exceeding the nominal increase, showing that long-term funding costs are undergoing a deeper repricing 鈥?namely, AI construction first drives demand for financing, electricity, and equipment, while the productivity dividend takes time to materialize. At the same time, fiscal authorities and corporations compete for funds, and investors demand higher term risk compensation, jointly pushing up long-term capital costs. This surge in Treasury yields can be said to further spill over into global stocks and bonds.
AI data center construction is rapidly driving demand for financing, electricity, and equipment, while the productivity dividend sufficient to ease supply constraints still takes time to materialize; meanwhile, large-scale fiscal financing and corporate capital expenditure compete for funds together, and long-term bond investors also demand higher risk compensation, keeping long-end rates under sustained pressure. As this "anchor of global asset pricing" moves higher, the impact transmits from the Treasury market to the global financing system: future earnings of tech stocks face a higher discount rate, the opportunity cost of holding gold increases, and data center projects reliant on long-term financing must achieve higher and more stable cash returns to cover rising capital costs.
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