Fed Official Says Iran War Pushed Rate Hike Decision

A top Federal Reserve official said that the recent renewal of combat in the Middle East pushed her to support raising borrowing costs last week. Susan Collins, president of the Federal Reserve Bank of Boston, agreed with the Fed's decision to lift its benchmark interest rate by a quarter-point to about 3.9%. She also expects rates will remain unchanged next year.

Collins cited geopolitical developments and supply shocks from the Iran war as reasons for her support of the rate hike. Businesses in her district are concerned about high costs and expect to pass them on to customers, which could push up measured inflation.

Austan Goolsbee, president of the Chicago Fed, also spoke about inflation pressures arising from supply shocks. He suggested that the central bank may have to cause economic pain by raising rates to combat stubbornly high inflation.

Goolsbee noted that the Fed is facing a series of persistent supply shocks, including higher oil prices and tariffs. Typically, the central bank would wait for such shocks to fade, but with ongoing supply shocks, the Fed has little choice but to hike rates to lower consumer and business demand to a level consistent with reduced supply.