Goolsbee and Collins say oil and tariffs could keep rates elevated longer
Boston Fed President Susan Collins says persistent inflation and renewed Middle East conflict backed her vote for a 25-basis-point rate hike
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Chart: Fed target rate, top of the range
Chicago Fed President Austan Goolsbee said higher oil prices tied to the Iran war, along with tariffs, could force further rate hikes. He said the Fed may need to weaken demand if inflation turns out to be demand-driven rather than a temporary supply shock.
Boston Fed President Susan Collins said persistent inflation and renewed conflict in the Middle East supported her vote for the Fed's quarter-point rate increase. She said higher energy prices could keep inflation above the Fed's 2% target for longer.
The warnings follow comments from Fed Vice Chair Alberto Musalem, who said the Fed likely needs more rate hikes to curb inflation. Musalem said business contacts are planning price increases near 3%, even after stripping out supply-side pressures, and that a commodity shock has now spread to copper. Goolsbee had earlier said a rate hike would not reverse the cuts made in 2025, and that the Fed's own projections may not be enough if inflation proves demand-driven, a warning that came after the Fed's first rate hike since 2023.
On the diplomatic front, Vice President JD Vance said oil is still flowing from Iran and that the US will work to protect Navy vessels in the Strait of Hormuz. He said talks with Iran will continue at the United Nations this week. Iranian and US officials are due in New York for those talks, with Qatar saying it is working to broker a short-term agreement between the two sides.
Goolsbee and Collins are now explicitly tying oil and tariffs to the case for higher rates, treating them as demand accelerators rather than just supply shocks. That hardens the argument Musalem had already made for keeping rates elevated, and it pushes back against any relief in markets that the quarter-point hike would be a one-off. For investors in equities and longer-dated bonds, that raises the odds that rates stay higher for longer, or rise further still.