Cleveland Fed President Beth Hammack says a restrictive policy stance is appropriate and that adjustments should come relatively quickly. She sees broad inflation pressures and warns that persistently elevated inflation risks an entrenched inflationary mindset. Traders see a nearly 88% chance of a hike in December.
Cleveland Fed President Beth Hammack said on Monday that tighter monetary policy might be needed to bring down inflation, and that the central bank should make fast, incremental adjustments. She spoke in prepared remarks at the National Association for Business Economics annual gathering.
According to Reuters: "A restrictive monetary policy stance is appropriate to ensure a timely return to 2% inflation." Hammack added that, when feasible, she generally prefers smaller adjustments made relatively quickly over waiting and risking a larger course correction.
Broad inflation pressures
Hammack described inflation pressures as relatively broad-based rather than concentrated in one component. Energy has made headlines this year, she said, but it is not the whole story.
The personal consumption expenditures price index came in at 3.4% year over year in August. The core reading, which strips out volatile food and energy costs, registered 3%.
Hammack also pointed to demand-side pressures from the AI buildout, which she said are raising prices on key computer, electronic and high-tech components.
Expectations and the pace of hikes
However, Hammack said long-run inflation expectations have stayed remarkably well anchored despite actual inflation being above target for more than five years. She added that she is not taking that for granted.
Separately, comments reported by investingLive show Hammack saying the question for the Fed now is how fast to make policy more restrictive. She also said she does not want to threaten the jobs side of the Fed's mandate.
Markets price a December hike
The Fed voted to raise rates last month for the first time in three years. Investors expect the Fed to keep its policy rate in the 3.75%-4.00% range at its October 27-28 meeting.
Traders see a nearly 88% chance of a hike at the Fed's final meeting of the year in December, according to CME's FedWatch tool.
Sources: CNBC, Investing.com, Investinglive
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