Cleveland Federal Reserve President Beth Hammack reiterated her call for higher interest rates, emphasizing the need for the central bank to act now to bring down inflation. Speaking from the Fed's annual symposium in Jackson Hole, Wyoming, Hammack stated, "I believe now is the time to act," highlighting that inflation has been running well above the Fed's target of 2% for over five years. She expressed concern that current financial conditions do not show sufficient restriction in policy. Hammack was one of three dissenters at the July Fed meeting, preferring a quarter percentage point hike when the Federal Open Market Committee (FOMC) decided to hold the policy rate between 3.5% and 3.75%.
Hammack underscored the severe impact of inflation on household budgets. She cited conversations with workers in Erie, Pennsylvania, who, despite having good jobs, felt despair because they couldn't "make ends meet" or afford simple pleasures like an ice cream cone for their children. She warned that the longer inflation remains above the target, the harder it will be to reduce, and the greater the pain for individuals and businesses. Her primary worry is the risk of an "inflationary mindset" taking hold among the public, leading to a loss of confidence that inflation will return to 2%.
While acknowledging that the most recent inflation report showed an annualized rate of around 3%, Hammack believes that even with a slowdown in monthly price increases, monetary policy needs to be tightened. She projects inflation to end this year around 3% and only ease to about 2.5% next year at best, still above the Fed's target. Hammack believes her projection for the neutral rate is on the upper end of the committee's range, suggesting a more restrictive stance is necessary.
Her stance contrasts with market expectations, which indicate the Fed will likely keep rates steady at both its September and October meetings, potentially waiting until December for any further hikes. Hammack maintains that the persistent nature of inflation and the economy's lack of restriction necessitate immediate action, especially as some officials fear that supply shocks, such as those from the Iran war, tariffs, and AI demand, could become embedded in the economy.
