Federal Reserve Bank of Boston President Susan Collins said further interest rate increases may be necessary before the end of the year to help bring inflation under control.
"I currently also anticipate that, to ensure inflation returns to the Committee's 2% objective in a timely and sustained manner, it will be appropriate to raise rates a bit further before the end of the year," Collins said in prepared remarks for a banking conference hosted by the Boston Fed.
Collins cautioned that her views on whether further rate adjustments are needed and the timing of any moves will depend on incoming data.
The minutes of the Fed's September meeting showed that the decision by the Federal Open Market Committee (FOMC) that month to raise rates by 25 basis points drew unanimous support from all 19 policymakers.
Fed Chair Kevin Warsh said the increase was intended to remove "a dose of accommodation."
Collins said she expects the economy to keep growing and the labor market to remain near full employment.
"In this scenario, as continued efficiency gains help keep supply and demand in balance and push inflation lower, inflation will gradually return to 2%," she said.
But Collins also warned of two other scenarios she considers almost equally likely.
Demand driven by artificial intelligence could trigger an unusually large investment boom, further boosting household spending, overheating the labor market, and keeping inflation persistently above the Fed's target.
In addition, she said, price pressures from tariffs and energy, especially if the war with Iran continues, could prolong the inflation problem.
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