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Observations on the Economic Outlook,
and Small Businesses
Remarks at Outlook 2026, hosted by the Springfield
Regional Chamber

Susan M. Collins
President & Chief Executive Officer
Federal Reserve Bank of Boston

March 6, 2026
Springfield, Massachusetts

The views expressed today are my own, not necessarily those of my colleagues on
the Federal Reserve Board of Governors or the Federal Open Market Committee

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Key Takeaways
1. Collins, visiting a variety of sites in western Massachusetts, noted that the value Fed policymakers get
from listening to stakeholders in their district underlines the wisdom of the U.S. central bank’s framing as a
federated system.
“The federated structure, with elements in different areas, befits our expansive, varied country filled with
such a range of people, industries, and places.”
2. In 2025, Collins said, real GDP growth was stronger than many expected. Despite solid economic
growth, labor market conditions softened, with job gains well below the pace in recent years. Even with the
economy growing near capacity, and limited price pressures from the labor market, inflation remained
elevated.
“Returning the inflation rate to target will not, of course, reduce the price level, but it is essential for
restoring the steady, predictable pricing environment that is conducive to a vibrant economy.”
3. For 2026, though considerable economic uncertainty remains, exacerbated by the outbreak of hostilities
in the Middle East, Collins’ baseline outlook is fairly benign – featuring continued solid growth, relatively
balanced labor market conditions, and disinflation resuming later this year as tariff effects fade.
“My outlook has demand exerting some upward pressure on prices, slowing the return of inflation to 2
percent.”
4. Monetary policy should be based on an assessment of where the economy is heading, and based on her
outlook, Collins sees a patient, deliberate approach as appropriate. Her baseline features a still-uncertain
inflation picture, with continued upside risks, combined with recent evidence suggesting continued relative
balance in the labor market – and given this outlook, she would expect to maintain policy rates at their
current, mildly restrictive levels for some time.
“I do not see an urgency for additional policy adjustments, and I will be looking for clear evidence that
inflation is moving durably toward the 2 percent target – something that might occur only over the second
half of the year.”
5. Collins hears a great deal about cost concerns from small businesses. Rising cost pressures in a
strongly competitive environment are pushing many companies to reduce profit margins. Several noted
reduced capital investment, as a result.
“We hear many accounts of rising costs for insurance, energy, construction, packaging, and inputs. And an
issue mentioned in almost every conversation is high housing costs affecting labor availability.”
6. Collins hears as well about the positives for small businesses, especially around innovation, adaptation,
and collaboration. For example, small businesses are identifying areas where skills gaps exist and
designing programs with local partners to train workers, in a “win-win-win.” Collins said she has seen
innovative start-ups solving problems, and others building new businesses based on the region’s legacy
strengths.
“My tremendous optimism for New England [is] rooted in meeting so many people working on the front lines
of the economy to leverage the skills and character of New England’s people, the vibrancy of our unique
ecosystem of institutions and companies, and the benefits of collaboration and innovation.”

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Good afternoon. It is wonderful to be with you today, and an honor to be on the program
with Governor Healey, Secretary Paley, Congressman Neal, and Mayor Sarno. It is really a
pleasure to be with all of you attending this event, who are building the present and future economy
in western Massachusetts. I’d also like to thank Diana Szynal and Dominick Ianno for the invitation
to be here.
Today I’d like to share, for context, a bit about the Federal Reserve; then discuss the
economy, my outlook, and my views about appropriate monetary policy – and end with some
perspectives regarding small businesses. I’ll share some numbers, because objective rigor is
always important, and will also relate some of the qualitative themes I hear when meeting with
people across New England.1 But first, as always, I’ll give my standard disclaimer. These comments
reflect my own views, not necessarily those of my colleagues at the Board of Governors in
Washington, D.C., or at the other Reserve Banks.
In my job, it’s vital to complement good data with outreach to people on the front lines of the
economy, in all kinds of places: rural, urban, and suburban; thriving and struggling. So, I spend time
hearing about economic challenges and opportunities, as well as experiences with costs and prices,
and the job market – reflecting the Fed’s Congressionally mandated goals, price stability and
maximum employment.
Eight times a year, I gather with other Fed officials as part of the Federal Open Market
Committee, or FOMC, to deliberate on interest rates – relaying our analysis and insights to each
other and determining the appropriate stance of monetary policy. While this isn’t the Fed’s only
responsibility, it is a key one. We also provide vital payment services and platforms, which underpin
the financial system; ensure safety, soundness, and fair access to credit by supervising many
financial institutions; and do rigorous research on a wide variety of economic issues. All of our work
supports a vision of a vibrant economy that works for all, and a resilient financial system.
The value policymakers get from listening to stakeholders in their district underlines the
wisdom of the U.S. central bank’s framing more than 112 years ago as a federated system – with
components spread throughout the country, not just in the nation’s capital and the “financial capital”
of New York. The federated structure befits our expansive, varied country filled with such a range of
people, industries, and places. That’s one reason I'm excited that today I've been able to learn more

1 The Federal Reserve Bank of Boston is one of 12 Reserve Banks in the Federal Reserve System, and

covers most of New England. Together with the Board of Governors in Washington D.C., the 12 Reserve
Banks form the Federal Reserve System, established in 1913 as the U.S. central bank.
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about the energy grid in Holyoke, and meet with members of the Western Mass. Economic
Development Council. Later today I'll be seeing aspects of the Mass. agricultural economy in
Greenfield, and holding a roundtable on the rural economy.
A final introductory point, before turning to economic conditions and then small businesses.
Springfield, where we gather today, has long been important to the Boston Fed, and you’ve had a
major impact on the ways we work with communities across New England. Like so many mid-sized
cities, Springfield experienced the decline in U.S. manufacturing over the decades. With our focus
on the public’s economic wellbeing, the Boston Fed began in the mid-2000s analyzing economic
development approaches of mid-sized manufacturing-oriented cities like Springfield during the prior
half century. We found that for the most resurgent small cities, “industry mix, demographic
composition, and geographic position are not the key factors […] Instead, the most important
lessons from the resurgent cities concern…collaborations among numerous organizations and
sectors.”2
Building on the insight that cross-sector collaboration on shared goals was the “secret
sauce” in the most resurgent cities, under my predecessor Eric Rosengren the Boston Fed
developed programs to help spark and support it – first in smaller cities and then in rural areas as
well. The solutions are local ideas – developed and refined by local people, from various sectors.
For example, the Springfield Working Places effort (“Springfield Works”) included more than 40
partners involved in workforce development, and identified ways to address employment barriers
and create career ladders (even across firms), so residents can locate job openings and advance in
them, and employers can hire and retain the workers they need. In nearby Holyoke, the effort
focused on strengthening the overall business ecosystem, with a variety of partners collaborating to
nurture entrepreneurs and tackle barriers to business development. Ultimately, the Boston Fed’s
Working Places programs3 engaged 30 sites across five states, and we continue to draw lessons
from those collective efforts.
While many of the challenges in places seeking resurgence are the purview of fiscal
policymakers, the Boston Fed’s commitment to a vibrant economy that works for all leads us to
contribute as objective researchers and, at times, as “conveners.” There are no shortages of

2 Reinvigorating Springfield’s Economy: Lessons from Resurgent Cities, by Yolanda K. Kodrzycki and Ana

Patricia Muñoz, with Lynn Browne, DeAnna Green, Marques Benton, Prabal Chakrabarti, David Plasse,
Richard Walker, and Bo Zhao. https://www.bostonfed.org/publications/public-policy-discussionpaper/2009/reinvigorating-springfields-economy-lessons-from-resurgent-cities.aspx
3 See https://www.bostonfed.org/workingplaces.aspx

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challenges, but many opportunities as well. The keys for all of us who care about the New England
economy are engagement, cross-sector collaboration, objective analysis, and commitment to
progress.
With that as introduction and context, let me turn to the national economy and monetary
policy, before concluding with some comments about recent trends involving small businesses and
their vital importance to New England.

The National Economy and Policy
Turning to the national economy, and in keeping with the themes of this forum, I’ll briefly
discuss economic performance last year, implications for this year’s economic outlook, and my
views on monetary policy – focusing first on overall growth, then the labor market, then inflation.
And I’ll refer to a few charts to illustrate key points.

Economic Activity
Starting with economic activity, real GDP growth in 2025 was stronger than many expected,
especially when considering the unanticipated changes in tariff and immigration policies and the
extended government shutdown. Figure 1 shows that, despite these headwinds, the economy grew
at 2.2 percent – only a bit slower than in 2024, and near my estimate of GDP growth when the
economy is operating at full capacity.
Consumer spending, the largest component of aggregate expenditure, was an important
contributor to sustained growth in 2025. This reflected still-favorable compensation growth4 as well
as elevated household net worth, with continued increases in equity and housing valuations likely
accounting for about a third of the growth in household spending. But I will note that aggregate data
mask a range of experiences across geographies and demographic groups. In particular, I continue
to hear about financial strains among lower-income households, and how these strains are affecting
their spending.
Business spending on both R&D and equipment – a notable portion AI related, also
bolstered demand last year.5 At the same time, the strength in consumption and investment was

4 On a four-quarter basis, compensation of employees in the NIPA accounts grew by 4 percent in 2025:Q4, or

1.2 percent when adjusted for inflation.
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offset, to some extent, by a contraction in investment in housing and in business structures other
than AI data centers.

The Labor Market
Despite the solid economic growth, labor market conditions softened in 2025. Figure 2
shows that job growth was well below the pace of recent years – and low for a period when the
economy is not in a recession, which are shown by the grey vertical bars. However, since
population growth and the supply of workers change over time, the pace of job growth needed to
keep the unemployment rate stable, the so-called breakeven pace, also fluctuates. Still, it appears
that the rate of hiring last year was below breakeven as we saw a modest increase in the
unemployment rate as shown in Figure 3. And while I do not put too much emphasis on any
particular data point, at 4.4 percent in February, the unemployment rate remains low by historical
standards and has been relatively stable over the last few months.6
I will make three points in this context. First, firms’ hesitancy to hire last year likely reflected
both the highly uncertain economic environment due to changing tariff policies and also the
potentially reduced need for workers due to productivity gains – including advances in AI.7 But while
noteworthy, developments potentially related to AI adoption appear to have been contained, at least
so far.
Second, last year’s labor market softening reflected reduced growth in both labor demand
and labor supply, which is difficult to disentangle. However, the sharp immigration slowdown implies
that a slower net pace of job creation is now needed to keep the labor market relatively well
balanced – though this balance is somewhat unusual.

5 A large portion of equipment purchases was likely AI-related, though some of these goods were imported,

not produced domestically. And while investment in AI-related structures was especially strong, it is a small
component of GDP.
6 The charts accompanying these remarks were prepared before the Employment Situation report release on

Friday March 6 (the day the speech is delivered) by the U.S. Bureau of Labor Statistics (https://www.bls.gov/).
7 To that point, the small unemployment rate rise has been concentrated among college-educated workers,

which is broadly consistent with a potentially reduced need for skilled labor. AI’s ability to perform some basic
entry-level tasks may also help explain why workers entering or reentering the labor market are having more
difficulty finding jobs.
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Third, solid growth with little job creation implies that 2025 was another good year for labor
productivity. In fact, output per hour worked has been growing notably faster since the COVID-19
pandemic, compared with its average pace between 2008 and 2019. In my travels around the
District, I hear numerous examples of efficiency gains – most of them not AI related – such as
automation or streamlined business processes. And as I will discuss, this strong productivity growth
has important implications for thinking about how economic conditions may evolve.

Inflation
Even with activity growing near capacity, and little inflationary pressures from the labor
market, inflation has remained elevated. The left panel of Figure 4 shows that core PCE inflation,
which excludes the important but volatile food and energy categories, was 3 percent on a 12-month
basis in December 2025. While down from the earlier peak, it was the same as in December 2024
and still a full percentage point above the FOMC’s 2 percent inflation target.
As shown in the right-hand panel, five years of high rates of inflation have resulted in a
surge in the price level – which I hear about frequently in conversations around New England.
Returning the inflation rate to target will not, of course, reduce the price level, but it is essential for
restoring the steady, predictable pricing environment that is conducive to a vibrant economy that
works for everyone.
The lack of overall progress on inflation reflects different dynamics across different
categories, as shown in Figure 5. Goods inflation, in panel A, moved up noticeably – due to tariffs.
In contrast, shelter inflation – which is driven importantly by changes in rents – is back down to prepandemic levels, shown in panel B. However, panel C shows that there was little improvement in
services inflation excluding shelter, which is the largest of these three components.8

The Outlook
I will now turn to how economic developments last year inform my 2026 outlook. Though
considerable economic uncertainty remains, exacerbated by recent geopolitical developments like
the hostilities in the Middle East, my baseline outlook is fairly benign – featuring continued solid

8 Elevated inflation for non-housing services reflects rapid price growth for a range of categories, including

health care, insurance, and financial services, some of which are classified as “non-market” services.
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economic growth, relatively balanced labor market conditions, and disinflation resuming later this
year as tariff effects fade. I will say a bit more about each.
Starting again with real activity, there are a few reasons to expect continued solid growth.
Broad financial conditions remain supportive of economic activity, especially given the FOMC’s
cumulative policy rate cuts late last year, totaling three-quarters of a percentage point. For
households, tax cuts should increase disposable income and consumers’ ability to spend. Business
spending is likely to be bolstered by increased investment incentives, while robust AI-related data
center expenditures continue. And the drag from reduced investment in housing and non-AI
business structures seems likely to diminish. This more broad-based growth should also provide
some insurance against the possibility of more limited gains in household net worth, and the
resulting support to consumption, going forward.
With respect to the labor market, past productivity expansions suggest that hiring tends to
pick up, after an initial period of limited job growth, as more firms enter the market to take
advantage of the gains from the productivity improvements. However, the path of job gains depends
on the extent to which the new technology complements or displaces labor, and it is still too early to
know the impact of recent, and on-going, productivity gains. Relative to average historical patterns,
I see the potential for somewhat more labor replacement, possibly unfolding more quickly than in
the past, even though I still expect some labor-enhancing effects as well. So, while hiring could pick
up relative to last year’s sluggish pace, job gains are likely to remain modest.
Finally, regarding inflation, while I expect tariff-driven increases in goods prices to wane later
this year, other scenarios are also plausible. If the enacted tariff rate rises again after the current
temporary 10 percent global tariff expires in July, we could see additional tariff-related price
increases.
More broadly, an important issue for the inflation outlook is the extent to which firms will
pass productivity gains through to consumer prices, limiting upward pressures on inflation from solid
demand. This is most likely to occur if there is price competition as more firms adopt new
technologies, and new firms enter profitable markets. This process, however, could take time. As a
result, my outlook has demand exerting some upward pressure on prices, slowing the return of
inflation to 2 percent.

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Monetary Policy
Monetary policy should be based on an assessment of where the economy is heading, and
based on my outlook I see a patient, deliberate approach as appropriate. My baseline features a
still-uncertain inflation picture, with continued upside risks. This, combined with recent evidence
suggesting a relatively stable labor market, in my view argues for maintaining policy rates at their
current, mildly restrictive levels for some time.
I do not see an urgency for additional policy adjustments, and I will be looking for clear
evidence that inflation is moving durably toward the 2 percent target – something that might occur
only over the second half of the year. Of course, it remains very important to continue assessing the
incoming data in their entirety – and policy is well positioned to adjust as needed, depending on
how conditions and the outlook evolve.

Small Businesses
For the last part of my remarks, I would like to talk about small businesses. I don’t need to
tell the people in this room that these firms are an important part of the economy, especially in New
England – contributing greatly to job creation, vibrancy, and innovation.
As Figure 6 shows, businesses with less than 100 employees nationally accounted for a
third of total employment in 2023 – the most recent year for which we can break down total
employment by firm size nationally and locally. Moreover, the so-called micro enterprises – those
with 1 to 19 workers – provide 1 out of every 6 jobs. More generally, smaller businesses (those with
fewer than 250 workers) accounted for 55 percent of net new job creation between 2013 and 2023.9
The importance of small businesses is even more apparent when measured as a share of
all companies in the United States. In fact, more than 70 percent of all businesses are headed by
sole proprietors, while micro-enterprises account for nearly 85 percent of firms with any employees.
Turning to New England, the share of jobs in micro enterprises is well above the national
average. This is highlighted in Figure 7, where counties with shares above the national average are
shaded in blue. Note that this is particularly true for northern New England but is also evident in

9 For additional details see: https://www.bls.gov/opub/ted/2024/small-businesses-contributed-55-percent-of-

the-total-net-job-creation-from-2013-to-2023.htm
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Rhode Island, Connecticut, and Massachusetts. In fact, in 14 of New England’s 68 counties, micro
enterprises provide 30 percent or more of all jobs.
I will note that counties that contain a larger city tend to have smaller shares of micro
enterprises. That is true for Suffolk County, which includes Boston, and Hampden County – where
we are right now – which includes Springfield.
The critical importance of small and micro businesses has been a theme in so many of the
areas I’ve visited across New England. This certainly includes some rural economies contending
with the loss of large employers (like Millinocket, Maine). But it has also been a theme in areas
where smaller firms are essential to the supply chain of large entities – for example, small
manufacturers in Connecticut and Rhode Island are essential to Electric Boat.
Despite their economic importance, we do not have a lot of data – especially on a timely
basis – on small businesses. This is one of the many reasons I spend time traveling around the
region (the Federal Reserve’s First District).
One timely source we have is monthly survey data gathered by the National Federation of
Independent Businesses (NFIB), representing a wide range of small and independent businesses of
various sizes across different industries. Given my focus on inflation and the labor market, I’ll
highlight a few related recent trends in the NFIB survey. And I’ll augment this information with some
of what I’ve heard in discussions with small businesses around New England.
In terms of price pressures, Figure 8 shows the percentage of respondents in the NFIB
survey who cite inflation as the “single most important problem they face” in a given month. The
figure highlights that while these concerns have eased a good deal in conjunction with inflation
trending down nationally, they remain notably elevated relative to historical norms.
I do hear a great deal, anecdotally, about cost concerns from small businesses. Many report
large increases in health-insurance benefit costs, for example. At a recent meeting with a dozen
small businesses, almost all mentioned rising cost pressures, which in most cases are pushing
them to reduce margins in a strongly competitive environment. Several noted reduced capital
investment as a result. We hear many accounts of rising costs for energy, construction, packaging,
and inputs. And an issue mentioned in almost every conversation is high housing costs affecting
labor availability.10

10 I consistently hear about undersupply of workforce housing across New England. A lack of housing limits

the ability to attract new workers to parts of the region, and high costs have impacted new project
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At the same time, the NFIB survey finds that a shrinking share of small and independent
businesses report having open positions they are unable to fill, as shown in Figure 9. This pattern
is consistent with the overall labor market softening we have seen at the national level, where
conditions are relatively balanced and generating limited wage-inflationary pressures.11
Even so, it remains challenging for many businesses around the region to fill highly-skilled
positions. This has led some companies to focus more on workforce development programs,
including providing further training to existing employees.
Despite these challenges, I hear as well about the positives for small businesses, especially
around innovation, adaptation, and vibrancy – not to mention, some remarkable collaboration.
Figure 10 shows some of the small business visits I’ve been privileged to make.

•

I’ve seen small businesses identifying areas where skills gaps exist and designing programs
with local partners to train workers in a “win-win-win.” A great example is Cape Air and
Plymouth Airport working with Cape Cod Community College and other partners on
aerospace mechanic training.

•

I’ve seen smaller companies that are challenged to do large-scale workforce training
collaborate with each other and the public sector to create manufacturing-skills “pipelines”.

•

I’ve seen innovative start-ups solving problems and building new businesses on the region’s
legacy strengths. For example, a company aiming “to solve the modern problem of plastic
waste by leveraging Maine’s legacy of pulp and paper, using molded fiber packaging as a
replacement for rigid single-use plastic.”12

development. Limited availability has led some recruited talent to accept jobs, but leave when housing does
not pan out.
11 Consistent with relatively stable labor market conditions, the majority of small businesses in New England

expect employment to remain unchanged over the next year with twice as many expecting employment to
increase versus decline according to the recent 2025 Small Business Credit Survey conducted by the Federal
Reserve. For further details see the data appendix in the “2026 Report on Employer Firms: Findings from the
2025 Small Business Credit Survey (https://www.fedsmallbusiness.org/reports/survey/2026/2026-report-onemployer-firms).
12 https://www.tanbarkmfp.com/

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Concluding Observations
The theme of today’s gathering is of course the outlook for 2026 and beyond. I hope that
sharing my assessment of the economy, and the implications for monetary policy, is helpful context
for you. While there are many uncertainties and challenges in the national economic outlook, I hope
I’ve conveyed my tremendous optimism for New England – an optimism rooted in meeting so many
people working on the front lines of the economy to leverage the skills and character of New
England’s people, the vibrancy of our unique ecosystem of institutions and companies, and the
benefits of collaboration and innovation.
In that spirit I’ll end as I started, saying what a pleasure it is to be with you who are building
the western Mass. economy. I wish you the very best in 2026 and beyond.

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