Cleveland Fed President Hammack Signals Need for Multiple Rate Hikes to Tame Inflation
The Federal Reserve official, who dissented at the July meeting, warns that delaying action risks prolonging the deviation from the 2% goal, citing a lack of economic restraint despite current rates.
Beth Hammack, President of the Federal Reserve Bank of Cleveland, has indicated that the central bank will likely need to implement more than one interest rate increase to address what she describes as broadening inflation. Speaking to Yahoo Finance, Hammack argued that a single 25-basis-point hike would have limited impact on the economy, suggesting that a series of moves is required to effectively curb price growth.
Hammack, who dissented at the Federal Open Market Committee’s July policy meeting by advocating for a quarter-percentage-point increase while the majority held rates steady, stated that current interest rates in the range of 3.5% to 3.75% are not sufficiently restrictive. She noted that when engaging with businesses, she is not hearing any sense of restraint regarding investments or growth based on existing borrowing costs, which she views as a signal that policy action is needed now.
The Cleveland Fed President warned that delaying monetary tightening risks prolonging the deviation from the Federal Reserve’s 2% inflation target, making it harder to bring prices back down later. She compared the need for early intervention to braking before a stop sign to glide to a halt, rather than slamming on the brakes at the last moment to avoid a collision.
Recent data highlights the persistence of price pressures. The core Personal Consumption Expenditures Index, the Fed’s preferred gauge which excludes volatile food and energy prices, stood at 3.3% in June. The core Consumer Price Index was 2.6% for the same month, though economists expect it to have ticked down to 2.5% in July with a monthly increase of 0.2%, with the official reading due on Wednesday.
Hammack expressed a preference for being proven wrong, stating that nothing would make her feel better than seeing inflation return to target without further policy changes. However, she maintained that she does not believe this will happen on its own, emphasizing that while she does not wish to prejudge the exact number of hikes required, the current trajectory necessitates a more restrictive stance.
