Federal Reserve Bank of Boston President Susan Collins has a warning for anyone expecting interest rate relief soon: the next move could go the other way.

What Collins said

Speaking in late August, Collins said the Fed “will be appropriate to tighten policy soon” if the data doesn’t show sustained progress on inflation. It’s a notably firmer statement than the “hold steady” posture she and other Fed officials had signaled earlier in the year.

The inflation numbers behind the warning

Collins pointed to core PCE inflation — the Fed’s preferred gauge — running at an estimated 3.3% annually in July, well above the central bank’s 2% target. She noted inflation has now stayed elevated for more than five years, and that price concerns are widespread among businesses and households across New England.

The Fed’s policy rate has been parked in a 3.5%-3.75% range since December, and Collins’ comments suggest growing internal pressure to move if incoming data doesn’t cooperate.

What’s keeping prices elevated

Collins attributed the persistent inflation to a combination of factors: tariffs from federal trade policy, elevated oil prices tied to the conflict involving Iran, and heavy spending tied to AI infrastructure investment nationally. Locally, that national inflation picture lines up with regional data showing Boston-area prices up 3.7% year-over-year, led by a 16% jump in energy costs.

Why it matters for Massachusetts

A rate hike would ripple quickly through a state economy already dealing with a cooling housing market, a pullback in venture funding for the innovation sector, and rising costs for small businesses. Higher borrowing costs would likely make an already-expensive Boston housing market tougher to navigate for both buyers and developers, and could further slow the lab and commercial construction financing that the state’s innovation economy depends on.

What Collins is watching

Her core concern isn’t just current inflation — it’s what happens if inflation stays elevated long enough that households and businesses start expecting it to persist. That kind of shift in expectations, she’s warned, makes inflation meaningfully harder to bring back down. Boston Made’s Economy desk will track upcoming Fed commentary and inflation data releases as the central bank weighs its next move.

Small business owners in Greater Boston are contending with a cost environment that, while cooling in some categories, is still squeezing margins in the places that matter most: energy, rent, and labor.

What’s driving prices higher

The Boston-Cambridge-Newton metro area’s consumer price index rose 3.7% year-over-year as of July 2026, according to federal labor statistics. Energy costs are the biggest culprit, up 16.0% over the year with gasoline alone jumping 30.5%. Shelter costs — which factor into commercial as well as residential rents in many small-business leases — climbed 4.7%, and education and communication costs rose 4.5%.

Core inflation, which strips out food and energy, still expanded 3.0% over the year, with shelter again cited as the single largest contributor to price growth over the most recent two-month period.

Where businesses are catching a break

Not every cost is rising. Apparel prices actually fell 6.9% over a recent two-month stretch, and dairy prices are down 2.9% year-over-year — the lone decline among major grocery categories. For retailers and restaurants, that’s a modest offset against the bigger increases in energy and occupancy costs.

Why small businesses feel it more than big ones

Unlike large employers, most small businesses can’t hedge energy contracts or negotiate multi-year rent concessions at scale. A double-digit jump in energy costs and a near-5% rise in shelter costs hits a neighborhood restaurant or independent retailer’s bottom line directly and immediately, often faster than it shows up in headline economic data.

That squeeze is happening against the backdrop of a broader economic picture that’s sending mixed signals: statewide job growth is outpacing the national average, but biotech layoffs, corporate relocations, and population loss have all been part of the conversation about the health of the Massachusetts economy this year.

What owners can watch for

Energy and shelter costs are the two line items most likely to keep pressuring small business margins through the rest of 2026. Boston Made’s Economy desk will continue tracking regional CPI data as new releases come out, along with the state and local policy responses aimed at easing costs for small employers.

Boston built its reputation as an innovation hub on a simple formula: world-class research institutions feeding a steady pipeline of venture-backed startups, especially in biotech. That formula is under more pressure than it’s faced in years.

Fewer companies are getting funded

Massachusetts’ share of national venture capital dollars has slipped, and the number of companies in the state receiving funding has fallen by 13%. For a regional economy where early-stage funding rounds often determine whether a lab-based startup can hire its next ten employees, that decline matters well beyond the venture world itself.

Empty lab space tells the same story

Much of the lab and life-sciences real estate built during the pandemic-era expansion now sits vacant at record levels. Developers who bet heavily on continued biotech growth in Cambridge, the Seaport, and along Route 128 are now absorbing that space more slowly than projected, which in turn has made landlords and lenders more cautious about financing the next wave of lab construction.

Layoffs compound the funding slowdown

The funding pullback is landing at the same time hiring in the sector has turned negative: 745 life sciences jobs were cut across 14 Massachusetts companies in the first quarter of 2026 alone. Fewer new funding rounds and fewer open positions together make it harder for laid-off scientists and executives to find their next role without leaving the state entirely — a dynamic that feeds directly into the broader population and talent-retention concerns policymakers have been raising this year.

The state’s response

Governor Healey’s $4 billion Mass Leads Act is designed specifically to shore up life sciences and technology, and the state’s new Competitiveness Council has been tasked with identifying regulatory and tax changes that could make Massachusetts more attractive to venture investors and the companies they fund. More than 30 companies have expanded in the state recently, evidence that the ecosystem hasn’t stalled entirely — but the funding and real estate data both point to a market that has cooled meaningfully from its pandemic-era highs.

What it means for founders and workers

For entrepreneurs building in Boston right now, the practical takeaway is that capital is more selective and runways matter more than they did two or three years ago. Boston Made’s Economy desk will continue tracking funding, lab vacancy, and hiring data across the innovation sector as it develops.