Boston Federal Reserve President Susan Collins recently tempered expectations for interest-rate cuts this year, signaling a notable shift from the Federal Reserve’s March outlook.
Speaking with Barron’s, Collins shared a cautious perspective influenced by higher inflation projections and slowing economic growth, trends exacerbated by tariffs and evolving fiscal policies.
Collins, a voting member of the Federal Open Market Committee (FOMC) this year, noted a growing possibility that the Fed might maintain its current “moderately restrictive” stance on monetary policy well into 2025. The shift reflects concerns about inflation persistence and ongoing strength in the labor market, both of which could delay the central bank’s ability to ease rates.
Her remarks align with broader sentiment among Fed officials, who continue to evaluate the effects of tariffs, fiscal changes, and regulatory shifts on economic stability. Business leaders, particularly those representing smaller firms, have expressed apprehension about rising costs and policy uncertainty, factors that could prolong the Fed's wait-and-see approach.
For wealth advisors and RIAs managing client portfolios, the Fed’s cautious posture reinforces the need for vigilance in navigating uncertain markets.
Inflation and Growth Outlook Adjusts to Tariff Impacts
When asked about her evolving outlook ahead of the June FOMC meeting, Collins pointed to higher inflation and slower growth as key updates.
“Compared to March, my outlook reflects somewhat higher inflation due to tariffs and a moderation in growth,” Collins explained. “While hard data on tariff impacts remains limited, conversations with stakeholders suggest that cost increases may be passed on to consumers.”
For advisors, this underscores the importance of keeping clients informed about inflation risks and potential policy shifts. Inflationary pressures, coupled with weaker growth, could create a challenging environment for both monetary policymakers and investment strategists.
Collins also highlighted scenarios where inflation could persist longer than expected, potentially anchoring medium- to long-term inflation expectations. For advisors, this means anticipating shifts in fixed-income strategies and re-evaluating inflation-hedging tools.
Tariff Uncertainty and Policy Implications
Collins cautioned against assuming clear outcomes from tariffs, emphasizing the significant uncertainty they introduce. “I have less confidence in the economic projections I will present at the next meeting,” she noted. “Tariffs, regulatory changes, and geopolitical challenges all contribute to a highly uncertain landscape.”
This uncertainty translates to heightened risk for clients, making diversified portfolios and stress-tested strategies more critical than ever. The Fed’s “active patience” stance—waiting for clearer data—may extend longer than previously anticipated, requiring advisors to manage expectations around rate cuts.
“We need to see how the tariff impacts unfold,” Collins said. “The economy remains resilient, but it’s clear that tariff effects have not yet fully materialized.”
Advisors should prepare for potential market volatility as businesses adjust to shifting cost structures.
Possibility of No Rate Cuts in 2025
Collins acknowledged the possibility of no rate cuts in 2025, a scenario that could upend market expectations. “There are scenarios where we might need to hold rates steady longer than expected, especially if the labor market remains strong and inflation pressures persist,” she said.
For wealth managers, this could mean a sustained focus on income-generating assets, alternative investments, and defensive equity strategies.
Fiscal Policy Adds Complexity
Asked about the implications of recent fiscal developments, including House Republicans’ budget bill, Collins refrained from commenting on specific policies. However, she acknowledged their potential to influence economic conditions, particularly through tax cuts and spending changes.
“We need to assess how fiscal measures might impact financial markets and broader economic activity,” she said. “Higher tariffs may show effects sooner, but fiscal policies could shape the longer-term outlook.”
Advisors should remain alert to fiscal shifts that could impact credit markets, interest rates, and economic growth trajectories.
Small Business Challenges and Broader Market Implications
Collins expressed particular concern for small businesses, which face outsized challenges from tariffs and uncertainty. “Smaller firms often lack the liquidity to manage upfront tariff-related costs, making it harder for them to pivot in response to changing conditions,” she observed.
For advisors, this highlights the importance of monitoring credit risks in portfolios with small-cap exposure and exploring opportunities in sectors better positioned to weather these challenges.
Collins shared insights from recent travels to New Hampshire and Vermont, where businesses are adopting innovative strategies to address labor shortages and rising costs. However, she noted a prevailing “wait-and-see” mindset, especially among medium-sized and larger firms, due to uncertainty surrounding tariffs.
Key Takeaways for Advisors
Collins’ comments paint a picture of heightened economic uncertainty and a central bank that may need to hold its ground longer than markets anticipate. For wealth advisors and RIAs, this means preparing clients for:
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Prolonged Inflationary Pressures: Adjust fixed-income strategies to mitigate the impact of higher inflation.
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Volatility in Small-Cap Markets: Assess credit risks tied to smaller firms facing tariff-related challenges.
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Diversified and Defensive Positions: Prioritize assets that can weather prolonged monetary tightening.
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Fiscal Policy Monitoring: Stay attuned to changes in tax and spending policies that could reshape market dynamics.
In an environment where rate cuts are no longer a certainty, active portfolio management and clear client communication will be essential for navigating the road ahead.
