Boston Fed’s Collins Backs Another 2026 Rate Hike, Warns of Mortgage Bank Risks

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Boston Federal Reserve President Susan Collins said Tuesday she expects another interest-rate increase before the end of 2026, citing inflation risks that she believes outweigh the danger of a weakening economy. Her remarks put a fresh public endorsement behind additional tightening even as rising mortgage costs are already testing homebuyers and lenders.

Collins said she expects the Fed to “raise rates a bit further before the end of the year,” in prepared remarks released Tuesday for the Boston Fed’s Regional and Community Bankers Conference.

She immediately qualified that forecast, saying the timing and need for additional tightening would depend on economic data and changing risks. Collins was expressing her own view, not announcing a decision by the Federal Open Market Committee.

Collins supported September’s quarter-point increase, which brought the federal funds target range to 3.75%–4.00%. She argued that the labor market remains broadly balanced and near full employment, leaving policymakers room to focus on inflation that has exceeded their target for more than five years. Her position comes ahead of the October 27–28 FOMC meeting; it does not specify whether she favors action this month or in December.

Inflation risks persist despite some improvement

Collins pointed to the personal consumption expenditures price index, the Fed’s preferred inflation measure. Headline PCE inflation was 3.4% over the 12 months through August, while core PCE, excluding food and energy, was 3.0%. The more recent three-month annualized core reading was closer to 2%, a sign that underlying price pressure had eased over the summer.

She warned that the improvement might not last. Higher prices for diesel, jet fuel and heating oil could feed into transportation, lodging and other services, she said. The expansion of data centers and other artificial-intelligence infrastructure also risks pushing up prices for materials and equipment. Tariffs and the continuing conflict in the Middle East could add to those pressures.

Her outlook was not uniformly pessimistic. Collins said stronger productivity could allow economic growth to accelerate without a corresponding surge in inflation. She described a scenario in which efficiency gains keep demand and supply in balance, but said alternatives involving stronger spending or additional supply shocks were nearly as plausible. The uncertainty, rather than an imminent recession, underpins her argument for keeping monetary policy restrictive.

Mortgage-heavy community banks face a separate test

Collins devoted a substantial part of her speech to New England community banks, an important distinction from broader Fed commentary on inflation. She said those institutions hold a larger share of assets in loans, particularly mortgages on one- to four-family homes, than community banks nationally. That concentration supports local residential lending but can complicate earnings and liquidity management when rates change.

“We continue to closely monitor how banks in the region manage their interest rate risk profiles,” she said, citing the recent federal funds increase and the higher median rate path in September’s policymaker projections.

Funding costs on interest-bearing deposits have largely stabilized over the past two years, though at levels above those common during the preceding decade, according to Collins. Meanwhile, new loans made at higher rates and existing loans with five-year reset periods have lifted lending yields. Those developments have helped restore regional banks’ net interest margins toward post-financial-crisis norms. She cautioned that overall returns still trail national peers.

The rate exposure matters beyond New England. A bank carrying long-duration residential loans funded by deposits can experience pressure when the timing of asset and liability repricing differs. Higher lending rates may help new production but do not immediately raise income on fixed-rate loans already on the books. Collins did not identify any institution as troubled or forecast a wave of mortgage-related bank failures.

Her comments also shed light on regional consolidation. Five community bank mergers had occurred in the Boston Fed’s district so far this year, compared with 15 in 2025, she said. Improved earnings appear to have slowed the pace, although competition and the cost of operating independently remain factors in merger decisions.

What it means for mortgage rates

For mortgage professionals, another potential Fed hike is one part of a broader rate picture. Thirty-year fixed mortgage rates are influenced by longer-term Treasury yields, mortgage-backed securities prices and lender pricing, not mechanically set by the federal funds rate. Freddie Mac’s October 8 survey placed the average 30-year rate at 7.40%, the highest since November 2023.

Earlier Tuesday, Fed Governor Christopher Waller discussed how higher long-term Treasury yields themselves are restraining housing demand. WRE reported on those remarks. Collins approached the issue from a different direction: whether persistent inflation warrants additional action on the Fed’s short-term policy rate.

The two officials’ comments underscore why lenders should not assume that a pause at the next meeting would translate into lower mortgage rates. Collins’ expectation could change with incoming inflation and employment data. Until policymakers vote, an additional increase remains a forecast, not a completed policy action.