Cleveland Fed President Calls for Tighter Monetary Policy to Combat Inflation
- Fed President Beth Hammack advocates for smaller, quicker adjustments to interest rates to control inflation.
- Hammack expects it to take time to reach the central bank’s 2% inflation target.
- Traders predict a high likelihood of a rate hike at the Fed’s December meeting.
Cleveland Federal Reserve President Beth Hammack indicated on Monday that the Federal Reserve may need to implement a tighter monetary policy to address rising inflation, suggesting that the central bank should make prompt, incremental interest rate adjustments.
“When feasible, I generally think it’s preferable to make smaller adjustments, and to do so relatively quickly, rather than to wait and risk needing a larger course correction,” stated Hammack, a voting member of the Fed’s policymaking committee, during her remarks at the National Association of Business Economics annual meeting.
Hammack emphasized the need for a restrictive monetary policy stance, stating, “Considering all the inputs that factor into my reaction function, a restrictive monetary policy stance is appropriate to ensure a timely return to 2 percent inflation.”
Her comments suggest that more interest rate hikes could be forthcoming. The minutes from the Fed’s September meeting noted the possibility of another interest rate increase, although no specific timeline was provided.
In September, the Federal Reserve voted to increase interest rates for the first time in three years. According to CME’s FedWatch tool, traders currently estimate over a 78% chance that rates will remain unchanged at the upcoming policy meeting, while there is nearly an 88% probability of a hike at the Fed’s final meeting of the year in December.
Hammack pointed out that ongoing inflation challenges affect consumers, businesses, and monetary policymakers. She anticipates that, given the widespread nature of current inflationary pressures, it will take “some time” to return annual price growth to the Fed’s 2% target.
The personal consumption expenditures price index indicated a year-over-year increase of 3.4% in August, with the core reading, which excludes volatile food and energy prices, at 3% year-over-year.
“Long-run inflation expectations have stayed remarkably well anchored despite actual inflation being above target for more than five years,” Hammack noted, adding, “But I’m not taking that for granted.”
She cautioned that persistently elevated inflation increases the risk of an entrenched inflationary mindset in the economy, stating, “With each passing month, persistently elevated inflation raises the risks of an inflationary mindset becoming entrenched in the economy.”
News Courtesy of CNBC
