Boston Fed President Susan Collins stated she currently supports holding interest rates steady, but this stance depends on inflation continuing to make further progress toward the Fed's 2% target.

In an essay published Tuesday by the Boston Fed, Collins wrote: "Maintaining the current federal funds rate target range will require continued evidence that inflation is indeed declining. If sustained improvement in inflation fails to materialize, I believe that a near-term appropriate tightening of policy would be warranted."

Federal Reserve officials are next scheduled to meet in Washington on September 15-16.

Collins noted that recent inflation data reflects some easing in underlying price pressures, which is "a bit encouraging," but she also pointed out that monthly figures can be quite volatile. "Whether the recent improvement will be sustained remains to be seen."

Fed officials held rates steady at their July meeting. However, three policymakers supported a quarter-point hike, reflecting growing divergence among officials on how to address persistently high inflation. Two other non-voting officials also voiced support for a rate increase. Collins, who does not have a vote this year, said she backed the July decision to hold rates.

Collins indicated that restrictive rate levels and rising long-term Treasury yields should also help ease some inflation pressures generated by strong household and business spending. She added that the pass-through effects of previous tariff increases on prices have largely materialized, and the impact of higher oil prices on inflation should also begin to fade.

Collins cautioned that "the less optimistic scenario is also quite possible." She specifically highlighted upside risks to inflation, stemming both from further adverse supply shocks and from stronger-than-expected economic activity. On the latter, she noted that artificial intelligence infrastructure construction appears to be pushing up core goods inflation.

Collins said the U.S. labor market remains in an "unusually balanced" state, though that balance is not without risks.