Cleveland Federal Reserve President Beth Hammack expressed concern on Thursday that six years of inflation exceeding the Fed's 2% target could lead to an "inflationary mindset" among the public. She emphasized that preventing such a mindset is crucial to achieving price stability, as ingrained expectations for higher prices can influence wage demands and pricing decisions, making inflation more difficult to control.
Hammack suggested that if the public, businesses, and financial markets begin to expect higher future inflation, more substantial policy interventions might be necessary. She questioned whether current monetary policy is sufficiently restrictive to bring inflation back to 2%, indicating a greater concern for sustained high inflation than for risks to full employment. She noted that waiting for definitive proof of entrenched inflation could necessitate larger and costlier policy adjustments.
Her comments follow the Federal Open Market Committee's unanimous decision on September 16 to raise the federal funds target range by 25 basis points to 3.75%-4%. This move was intended to help return inflation to its 2% objective. Hammack's hawkish stance is consistent with her previous dissent from an April 28-29 FOMC statement that hinted at an easing bias, at which time she advocated for holding rates steady due to broad inflation and rising oil prices.
Hammack underscored the importance of FOMC communications in anchoring inflation expectations, stating that these expectations directly affect actual inflation outcomes. She views the risk of inflation remaining elevated as tilted to the upside, citing solid demand and supply shocks as ongoing challenges for the Fed. She is focused on avoiding a scenario where inflation stays high for too long, implying support for a cautious policy approach, potentially including further rate hikes.
