FEDERAL Reserve Bank of Cleveland President Beth Hammack said monetary policy should continue putting downward pressure on inflation, which she says is too high and remains a bigger risk for the US central bank than labour-market weakness.
“I remain concerned about high inflation and believe policy should be leaning against it,” Hammack said on Thursday in prepared remarks for an event at the Economic Club of New York.
The Cleveland Fed chief said she estimates inflation won’t reach the Fed’s 2 per cent target until a year or two after 2026, similar to the median estimate of the Fed’s 19 policymakers.
That would mean the Fed will miss its price target for “the better part of a decade,” and risks embedding high inflation in the economy, Hammack said.
“To me, comparing the size and persistence of our mandate misses and the risks, inflation is the more pressing concern,” she said.
“This argues for a mildly restrictive stance for our policy rate to ensure that inflation returns to 2 per cent in a timely fashion,” she said, adding the current interest-rate setting is “barely restrictive.”
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Policymakers lowered their benchmark interest rate by a quarter percentage point for a second straight meeting last month, bringing it to a range of 3.75 to 4 per cent. Following the meeting, Hammack said she had preferred to keep rates unchanged.
In remarks delivered in Frankfurt, New York Fed President John Williams didn’t comment directly on what the central bank should do in December, but he offered analysis that could support continued rate cuts.
Williams said he believes bond-market estimates of the so-called neutral rate – the level at which the policy rate neither weighs on nor stimulates the economy – are too high. If correct, that could give the Fed additional room to lower rates and still keep downward pressure on inflation.
Some officials, like Hammack, believe the Fed’s policy rate is already at or approaching neutral.
Also speaking on Thursday, Chicago Fed President Austan Goolsbee said he’s grown more uncomfortable about proceeding with additional rate cuts because of the lack of official data on inflation.
“If there are problems developing on the inflation side, it’s going to be a fair amount of time before we see that,” Goolsbee said on Thursday on CNBC. “That makes me even more uneasy.”
Hammack said she’s spoken to businesses in her district that say they’re facing higher costs and will need to pass on those price increases to consumers soon. She added that she’s relying more on such information amid the ongoing government shutdown and lack of official data.
She said the labour market is “generally healthy” but has softened. Still she expects it will be just “a couple of tenths of a percentage point” above its long-run value in early 2026. This reinforces the case for focusing more on inflation right now, she added.
“As uncertainty subsides and businesses take advantage of the strong capital markets landscape, I expect that economic growth next year will pick up from its fourth-quarter pace, eventually putting some downward pressure on the unemployment rate,” she said. BLOOMBERG
