Cleveland Federal Reserve President Beth Hammack, speaking at the Jackson Hole Symposium, reiterated her stance that the central bank needs to act now to raise interest rates to bring down inflation. She emphasized that while recent data showed inflation at around 3% annually and monthly rates of price increases have slowed, the current policy is not restrictive enough. Hammack, who was one of three dissenters at the July Fed meeting, had advocated for a quarter percentage point hike at that time when the policy rate was held between 3.5%-3.75%.
Hammack expressed significant concern about the prolonged period of inflation, which has been above the Fed's target for over five years. She warned that the longer inflation remains elevated, the harder it will be to reduce, leading to more financial strain on individuals and businesses. Her primary worry is that a persistent "inflationary mindset" could become entrenched among the public, making the Fed's job even more challenging. She noted that contacts she met in Erie, Pennsylvania, reported feeling despair despite having good jobs, struggling to make ends meet due to rising costs.
She expects inflation to end this year around 3% and only gradually ease to about 2.5% next year at best, still above the Fed's 2% target. Hammack believes the "neutral rate" of interest is higher than what some other Fed officials project, and she considers her own projection to be on the upper end of the committee's range. The job market is broadly balanced, but Hammack stressed the need for restrictive policy to tackle the ongoing inflation.
Several factors this year, including the Iran war, tariffs, and demand related to artificial intelligence, have contributed to inflationary pressures. While policymakers often look past temporary supply shocks, some officials, including Hammack, are concerned that these effects could become embedded in the economy. Despite her hawkish stance, market pricing currently suggests the Fed will hold rates steady in September and October, with the next potential hike not anticipated until December.
