Lower- and middle-income Americans are facing growing pressure from household costs as elevated energy prices add to inflation concerns, Boston Federal Reserve President Susan Collins has warned.

With inflation still above the Fed's 2 per cent target and the labour market losing momentum, policymakers face a difficult choice over whether interest rates may need to rise again.

Americans struggle with rising costs

Collins told the Financial Times that concerns about high prices regularly come up in her discussions with businesses. She said lower- and moderate-income households were increasingly finding it difficult to cover everyday expenses.

Energy costs are a particular concern in New England, where households rely more heavily on heating oil during winter. Oil is also used as a backup fuel for electricity generation, making the region more exposed to higher crude prices.

The pressure comes despite signs that some parts of inflation have eased.

Iran war adds to energy pressure

The conflict involving the US and Iran has added another layer of uncertainty to the inflation outlook. Slower oil shipments through the Strait of Hormuz have pushed up energy costs, increasing pressure on households and businesses.

Higher energy prices are also coming alongside US tariffs and heavy investment in artificial intelligence infrastructure, adding to concerns about the persistence of inflation.

Fed keeps September hike on table

Collins supported leaving interest rates unchanged in July but said she could back a rate increase in September if economic data showed that tighter policy was necessary.

She said monetary policy remained somewhat restrictive and could gradually bring inflation lower. However, inflation remains the bigger concern for policymakers despite signs of weakness in the jobs market.

Three Fed policymakers — Cleveland Fed President Beth Hammack, Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari — supported an immediate rate increase in July.

Jobs slowdown complicates the decision

The Fed is also dealing with a weakening labour market.

The US economy lost 23,000 jobs in July, while average monthly job growth over the past three months fell to about 20,000, compared with 73,000 during the first quarter.

Collins said the weak jobs data should be viewed cautiously because private-sector hiring remains positive and unemployment is relatively stable.

The combination of persistent inflation and slower hiring leaves the Fed facing a difficult policy choice: keeping rates high could help contain prices but put further pressure on households and businesses, while easing policy too soon could allow inflation to remain elevated.

What it means for Americans

For households already struggling with everyday expenses, another rate increase could make borrowing more expensive, affecting mortgages, loans and credit costs.

For the Fed, however, the priority remains preventing inflation from becoming entrenched. Collins' comments indicate that policymakers are not ruling out another hike if upcoming data show that price pressures remain too strong.

The September policy decision will therefore depend heavily on inflation, energy prices and labour-market data released before the meeting.