Global Economic Fragmentation Poses New Challenges to Federal Reserve, Says Boston Fed President Susan Collins

In a recent address at the Federal Reserve Bank of Boston's 69th Economic Research Conference, President Susan M. Collins highlighted the challenges posed by increasing global economic fragmentation, cautioning that such shifts could lead to heightened inflationary pressures and complicate the Federal Reserve's monetary policy objectives.

Collins emphasized that a move away from an integrated global economy may result in transitional inflation spikes, elevated domestic borrowing costs, and more volatile business cycles. She underscored the necessity for the Federal Reserve to adapt its strategies to navigate these emerging global risks effectively.

The conference, held on November 21–22, 2025, at the Federal Reserve Bank of Boston, focused on how the U.S. economy is adapting to an increasingly fragmented and volatile global environment. Economists, central bankers, and researchers explored topics related to geopolitical risks, monetary policy, tariffs, and multinational corporations. Collins, in her welcoming remarks, emphasized that heightened economic uncertainty can deter investment, reduce spending, and lead to increased volatility in financial markets, which could have significant implications for economic activity and financial stability.

Collins highlighted that the global economy faces increasing risks and uncertainties, such as pandemics, geopolitical tensions, extreme weather events, and cybersecurity threats. These risks are prompting significant reconfigurations in trade, capital, labor, and technology flows, potentially leading to a more fragmented global economy.

She warned that a shift toward economic fragmentation could usher in a transitional period of inflationary pressures, complicating the Federal Reserve's efforts to maintain price stability and maximum employment. Reduced global financial integration might raise domestic borrowing costs and destabilize broader financial conditions. Such fragmentation could lead to more volatile business cycles and unpredictable inflation, especially if economic shocks have a substantial supply-side component.

Collins noted that global fragmentation and rising risks may suppress short-term economic growth and diminish long-term prospects. She identified these trends as significant and transformative elements that will shape the future economic landscape.

The issues raised by Collins have profound implications for both the economy and society:

• Inflationary Pressures: A fragmented global economy could lead to higher inflation rates, affecting the purchasing power of consumers and the cost structures of businesses.

• Financial Market Volatility: Increased uncertainty and reduced global integration may result in more volatile financial markets, impacting investment decisions and economic stability.

• Employment and Growth: Economic fragmentation could suppress short-term economic growth and diminish long-term prospects, potentially leading to job losses and reduced economic opportunities.

The concerns about economic fragmentation are not unprecedented. Similar issues arose during periods of heightened protectionism and geopolitical tensions in the past. However, the current global landscape presents unique challenges due to the interconnectedness of economies and the complexity of supply chains.

By examining these themes, a comprehensive understanding of the challenges and considerations facing the U.S. economy in a changing global landscape can be achieved.