Federal Reserve Bank of Boston President Susan Collins said it looks “inevitable” that tariffs will boost inflation, at least in the near term, adding it’s likely appropriate to keep interest rates steady for longer.
While tariff-driven inflation could prove short-lived, Collins said it’s possible price pressures could prove more persistent.
“It looks inevitable that tariffs are going to increase inflation in the near term,” Collins said Thursday during a fireside conversation in Boston. “My kind of modal outlook would be that that could be short-lived with a continuation of some disinflation, but further in the future than I might have expected before.”
“But there are risks around that, and depending on how things unfold, it may be more persistent and a larger increase,” she said.
Fed officials left interest rates unchanged last week for a second straight meeting. Policymakers have said borrowing costs are well positioned to wait for greater clarity on the economic impact of President Donald Trump’s policy changes, including trade and immigration.
Chair Jerome Powell said last week that the economy remains strong and the labor market is solid despite elevated uncertainty. He also said that any tariff-induced inflation is likely to be transitory. St. Louis Fed President Alberto Musalem, however, said Wednesday that policymakers should be wary of assuming such inflation would be entirely temporary.
Collins highlighted two channels to watch for the impact of tariffs on inflation. Those include import prices, which she said tend to reflect levies quickly, as well as the degree to which higher costs are passed along to consumers.
Economic Outlook
The Boston Fed chief said Americans might respond differently to a pickup in price pressures than what’s being suggested by economic models given the recent period of high inflation.
Fed officials marked down their estimates for growth this year while lifting their bets for inflation, according to updated projections released after the central bank’s latest gathering. They also raised their estimates for unemployment, while noting there’s increased uncertainty for their forecasts.
Collins said it’s too early to predict the economic impact of tariffs, though she said a downturn in demand from worsening consumer sentiment is a “very plausible” scenario. Even so, she said the fundamentals of the economy remain robust. Currently, data point to a “wait-and-see” attitude among consumers, Collins said.
Collins highlighted the importance of inflation expectations, especially in a situation of more broad-based levies and retaliatory measures.
“That’s something that I take very seriously, and we’ll have to watch the data and see how things unfold and make decisions accordingly,” she said.
Powell, along with some of his colleagues, have said long-term inflation expectations remain well anchored. Several measures point to a pickup in consumers’ estimates for price increases in the near term, and a University of Michigan gauge of inflation expectations over the next five to 10 years has surged to the highest level in more than three decades.
--With assistance from María Paula Mijares Torres.
©2025 Bloomberg L.P.
