ECB faces trickier rate path after bank lending survey shows tighter conditions
ECB's bank lending survey shows tighter credit standards and weaker loan demand, complicating the rate outlook.
Boston Fed President Susan Collins said uncertainty is high and she is watching how broad inflation pressures are before the next rate decision.
By concentrating on how widely inflation is spreading, Collins is shifting attention to core and services prices rather than the headline figures driven by energy. If fuel costs start feeding into a broader set of prices, market pricing for a December increase would firm, giving extra support to front-end yields and the dollar. For oil, the upshot is that sustained gains in crude and refined products now carry a second-round risk the Fed is openly tracking. Her stress on high uncertainty also allows the data to push the next move back, setting a limit on how aggressively an October hike can be priced.
Having already called for another hike, Collins is now outlining what will decide the timing: in an uncertain economy, whether inflation spreads beyond energy.
Summary:
Speaking on Tuesday, Susan Collins, who leads the Boston Fed, said the economic outlook carries elevated uncertainty and that she is closely monitoring how broadly inflation pressures are spreading, as she laid out what will shape her thinking on when the next rate move should come.
She also said inflation data get her close attention and that she evaluates the economy as a whole when considering policy's future course. That focus on breadth points to surveillance of price pressures to see if they move into a broader array of goods and services instead of remaining limited to a few areas.
Her latest comments expand on what she said earlier in the day, when Collins voiced an expectation that the Fed will raise rates again before the end of 2026. In that speech text, written for a banking conference at the Boston Fed, she noted her support for the central bank's quarter-point increase in September, which brought the policy rate to a range of 3.75%-4.00%, and described the risk of high inflation as the Fed's main focus.
Collins has identified a number of factors that could hold inflation above the Fed's 2% target: spending on data centres and artificial intelligence infrastructure, the continuing impact of tariffs, and energy costs linked to the war in the Middle East. She has said that over the coming months both headline and core inflation are likely to stay above target, pointing to recent price gains for refined fuels including diesel, jet fuel and heating oil.
Her base case remains favourable: solid growth, a job market close to full employment and inflation gradually moving back toward target. Yet her most recent remarks make it clear she regards the outlook as uncertain, with the data still to come determining how quickly she wants policy to shift.
September's projections from policymakers suggested just one more rate increase this year. Over recent weeks, several Fed officials have said that a move is more likely in December than at the October 27-28 meeting, while Collins has said data will dictate how the policy path evolves going into the new year.
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ECB's bank lending survey shows tighter credit standards and weaker loan demand, complicating the rate outlook.
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