Fed's Collins: I would think some additional policy tightening is warranted soon

Boston Fed President Susan Collins said that additional policy tightening is warranted soon, signaling that she sees the current stance as insufficiently restrictive given her inflation outlook. The remark pushes the policy path higher, which transmits primarily through the rate differential channel: a higher expected terminal rate lifts Treasury yields, particularly at the front end of the curve, and tends to strengthen the dollar against currencies whose central banks are on hold or easing. Rate-sensitive assets are most exposed, including long-duration Treasuries, rate-sensitive equity sectors such as housing and small caps, and dollar pairs such as EUR/USD and USD/JPY. Traders will be watching the next U.S. CPI release and the subsequent FOMC communications for confirmation of whether inflation is running persistently above target, since a hot print would validate Collins' hawkish framing and reprice near-term hike probabilities.

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