--- source: Federal Reserve Bank of Boston url: https://www.bostonfed.org/news-and-events/speeches/2026/economic-outlook-small-business.aspx pdf_url: https://www.bostonfed.org/-/media/Documents/Speeches/PDF/collins/2026/20260306-text.pdf document_type: pdf date_retrieved: 2026-03-17 date_delivered: 2026-03-06 speaker: Susan M. Collins, President & CEO, Federal Reserve Bank of Boston event: Outlook 2026, Springfield Regional Chamber of Commerce location: Springfield, Massachusetts period: Economic outlook for 2026 parent_publication: Federal Reserve Bank of Boston Speeches indicators_covered: [Interest Rate, Monetary Policy, Economic Growth, Labor Market, Inflation, Small Business] --- # Observations on the Economic Outlook, and Small Businesses **Remarks by Susan M. Collins, President & Chief Executive Officer, Federal Reserve Bank of Boston** **March 6, 2026 | Springfield, Massachusetts** --- ## Disclaimer The views expressed in these remarks are those of Susan M. Collins and do not necessarily reflect those of colleagues on the Federal Reserve Board of Governors or the Federal Open Market Committee. --- ## Key Takeaways 1. **Federated Structure**: Collins highlighted the wisdom of the Federal Reserve's federated system with components spread throughout the country. "The federated structure, with elements in different areas, befits our expansive, varied country filled with such a range of people, industries, and places." 2. **2025 Economic Performance**: Real GDP growth in 2025 was stronger than many expected, despite tariff and immigration policy changes. However, despite solid economic growth, labor market conditions softened, with job gains well below recent years' pace. "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. **2026 Outlook**: Collins' baseline outlook is fairly benign, featuring continued solid growth, relatively balanced labor market conditions, and disinflation resuming later in 2026 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**: Monetary policy should maintain current rates at their 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. **Small Business Cost Pressures**: Collins hears significant concerns from small businesses about rising costs in insurance, energy, construction, packaging, and inputs. "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. **Small Business Innovation**: Despite challenges, Collins observes innovation, adaptation, and collaboration among small businesses, including workforce development initiatives and start-ups building on regional 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." --- ## Introduction Collins opened her remarks by noting the value Fed policymakers derive from listening to stakeholders across their district. The Federal Reserve's role extends beyond interest rate decisions—including payment services, financial institution supervision, and economic research. Collins emphasized that in her job, it is vital to complement good data with outreach to people across all types of places—rural, urban, and suburban; thriving and struggling. Collins referenced the Boston Fed's prior research on mid-sized manufacturing cities, which found that cross-sector collaboration on shared goals was "the secret sauce" in the most resurgent cities. Under her predecessor Eric Rosengren, the Boston Fed developed the Working Places programs that engaged 30 sites across five states to support workforce development and business ecosystem strengthening. --- ## The National Economy and Monetary Policy ### Economic Activity Real GDP growth in 2025 was stronger than many expected, especially considering unanticipated changes in tariff and immigration policies and an extended government shutdown. The economy grew at 2.2 percent—only slightly slower than 2024 and near the estimate of GDP growth at full capacity. **Drivers of Growth:** - **Consumer spending**: The largest component of aggregate expenditure, supported by favorable compensation growth and elevated household net worth. Collins noted, however, that aggregate data mask a range of experiences across geographies and demographic groups, with continued financial strains among lower-income households affecting their spending. - **Business spending**: Investment in both R&D and equipment—a notable portion AI-related—bolstered demand. - **Headwinds**: Investment in housing and non-AI business structures contracted, offsetting some of the strength in consumption and investment. ### The Labor Market Despite solid economic growth, labor market conditions softened in 2025. Job growth was well below recent years' pace—notably low for a period when the economy is not in recession. The unemployment rate rose modestly to 4.4 percent in February, remaining low by historical standards. **Three Key Observations:** 1. **Hiring Hesitancy**: Firms' reluctance to hire reflected both the highly uncertain economic environment due to changing tariff policies and potentially reduced need for workers due to productivity gains, including AI advances. 2. **Reduced Labor Supply**: Labor market softening reflected reduced growth in both labor demand and supply. A sharp immigration slowdown implies that a slower net pace of job creation is now needed to keep the labor market balanced. 3. **Productivity Gains**: Solid growth with little job creation indicates 2025 was another good year for labor productivity. Output per hour worked has grown notably faster since COVID-19 compared with its average pace between 2008–2019. Collins noted numerous examples of efficiency gains during her district travels, most not AI-related, including automation and streamlined business processes. ### Inflation Despite activity growing near capacity with little inflationary pressure from the labor market, inflation remained elevated. Core PCE inflation (excluding food and energy) stood at 3 percent on a 12-month basis in December 2025—down from earlier peaks but still a full percentage point above the Federal Reserve's 2 percent target. **Inflation by Category:** - **Goods inflation**: Moved up noticeably due to tariffs. - **Shelter inflation**: Driven by rent changes, has returned to pre-pandemic levels. - **Services inflation (excluding shelter)**: Little improvement in the largest of these three components, reflecting rapid price growth in healthcare, insurance, and financial services. Five years of high inflation rates have resulted in a surge in the price level—something Collins hears about frequently in New England conversations. --- ## The 2026 Economic Outlook Though considerable economic uncertainty remains, exacerbated by recent geopolitical developments in the Middle East, Collins' baseline outlook is fairly benign. ### Real Activity Reasons to expect continued solid growth in 2026: - Broad financial conditions remain supportive, given the FOMC's cumulative policy rate cuts late last year totaling three-quarters of a percentage point - Tax cuts should increase disposable income and household spending - Business spending likely to be bolstered by increased investment incentives - Robust AI-related data center expenditures expected to continue - Drag from reduced investment in housing and non-AI business structures expected to diminish - This broader-based growth provides insurance against limited gains in household net worth ### Labor Market Past productivity expansions suggest hiring tends to pick up after an initial period of limited job growth as firms enter the market to capitalize on productivity improvements. However, the path depends on whether new technology complements or displaces labor—still too early to know definitively. Collins sees potential for somewhat more labor replacement, possibly unfolding more quickly than in the past, even though she still expects some labor-enhancing effects. While hiring could pick up relative to 2025's sluggish pace, job gains are likely to remain modest. ### Inflation Collins expects tariff-driven increases in goods prices to wane later in 2026. However, if the enacted tariff rate rises again after the current temporary 10 percent global tariff expires in July, additional tariff-related price increases could occur. A critical question is the extent to which firms will pass productivity gains through to consumer prices, limiting upward pressure on inflation from solid demand. This is most likely if price competition increases as more firms adopt new technologies and enter profitable markets—a process that could take time. **"My outlook has demand exerting some upward pressure on prices, slowing the return of inflation to 2 percent."** --- ## Monetary Policy Stance Monetary policy should be based on an assessment of where the economy is heading. Based on her outlook, Collins sees a patient, deliberate approach as appropriate. Her baseline features: - Still-uncertain inflation picture with continued upside risks - Recent evidence suggesting a relatively stable labor market **Policy Decision**: 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." Collins emphasized the importance of continuing to assess incoming data in their entirety, with policy well-positioned to adjust as conditions and outlook evolve. --- ## Small Businesses: Economic Importance and Challenges ### Aggregate Importance Collins emphasized that small businesses are critically important to the economy, especially in New England. Key statistics: - **National employment**: Businesses with fewer than 100 employees accounted for one-third of total employment in 2023 - **Micro-enterprises**: Those with 1 to 19 workers provide 1 out of every 6 jobs - **Job creation**: Smaller businesses (fewer than 250 workers) accounted for 55 percent of net new job creation between 2013 and 2023 - **Business composition**: More than 70 percent of all U.S. businesses are headed by sole proprietors; micro-enterprises account for nearly 85 percent of firms with any employees ### New England Context The share of jobs in micro-enterprises is significantly above the national average in New England, particularly in northern New England, Rhode Island, Connecticut, and Massachusetts. In 14 of New England's 68 counties, micro-enterprises provide 30 percent or more of all jobs. Collins noted that counties containing larger cities tend to have smaller shares of micro-enterprises—for example, Suffolk County (Boston) and Hampden County (Springfield, where the speech was delivered). ### Cost Pressures Despite economic importance, small businesses face significant challenges. Collins cited NFIB survey data showing that while inflation concerns have eased from peaks, they remain notably elevated relative to historical norms. **Anecdotal reports from small businesses:** - Large increases in health-insurance benefit costs - Rising cost pressures pushing companies to reduce profit margins in competitive environments - Reduced capital investment as a result of cost pressures - Rising costs for energy, construction, packaging, and inputs - High housing costs affecting labor availability (mentioned in almost every conversation) Collins noted that undersupply of workforce housing across New England limits ability to attract new workers to parts of the region, and has impacted new projects. ### Labor Market for Small Businesses The NFIB survey shows a shrinking share of small and independent businesses reporting unfilled positions—consistent with the overall labor market softening at the national level, where conditions are relatively balanced and generate limited wage-inflationary pressures. However, many businesses around the region still find it challenging to fill highly-skilled positions, leading some companies to focus more on workforce development programs, including further training for existing employees. According to the 2025 Small Business Credit Survey, 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. ### Positive Developments Despite challenges, Collins observed significant innovation, adaptation, collaboration, and vibrancy among small businesses: **Examples from Collins' district visits:** 1. **Workforce Development Partnerships**: Small businesses identifying skills gaps and designing training programs with local partners in "win-win-win" arrangements. Collins cited Cape Air and Plymouth Airport working with Cape Cod Community College and other partners on aerospace mechanic training. 2. **Cross-Company Collaboration**: Smaller companies collaborating with each other and the public sector to create manufacturing-skills "pipelines." 3. **Innovation**: Innovative start-ups solving problems and building new businesses based on the region's legacy strengths. Collins noted an example of 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." --- ## Concluding Observations Collins expressed tremendous optimism for New England, rooted in meeting so many people working on the front lines of the economy to leverage the skills and character of the region's people, the vibrancy of the unique ecosystem of institutions and companies, and the benefits of collaboration and innovation. While considerable uncertainties and challenges remain in the national economic outlook, Collins emphasized the importance of engagement, cross-sector collaboration, objective analysis, and commitment to progress—themes that she sees embodied across New England's economy. --- ## Document Information **Event**: Outlook 2026, hosted by Springfield Regional Chamber of Commerce **Date Delivered**: March 6, 2026, 1:20 PM U.S. Eastern Time **Location**: Springfield, Massachusetts **Speaker**: Susan M. Collins, President & Chief Executive Officer, Federal Reserve Bank of Boston **Remarks Type**: Formal prepared remarks **PDF Status**: Charts PDF also available at https://www.bostonfed.org/-/media/Documents/Speeches/PDF/collins/2026/20260306-charts.pdf