Fed Hammack Warns Higher Rates May Be Needed to Curb Inflation

Cleveland Federal Reserve President Beth Hammack said Monday that the central bank may need tighter monetary policy to reduce inflation, speaking at the National Association of Business Economics annual gathering in Cleveland, Ohio. She said gradual but timely adjustments could help return inflation to the Fed's 2% goal.

Hammack, a voting member of the Fed's policymaking committee, said restrictive policy remains appropriate as inflation pressures continue. The Federal Reserve last month raised interest rates for the first time in three years, according to the report from CNBC.

"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," said Beth Hammack, president of the Federal Reserve Bank of Cleveland.

Hammack's remarks followed September Federal Reserve meeting minutes that indicated officials could support another rate increase, although they did not specify when such a move might happen. Market participants expected rates to remain unchanged at the later October meeting while assigning a higher probability of an increase at the final meeting of the year, according to CME's FedWatch tool as reported by CNBC.

"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," said Beth Hammack, president of the Federal Reserve Bank of Cleveland.

According to CNBC, the personal consumption expenditures price index increased 3.4% year over year in August, while the core measure excluding food and energy rose 3% from a year earlier. Hammack said persistent inflation pressures affecting consumers, businesses and policymakers could take time to ease.

"breadth" said Beth Hammack, president of the Federal Reserve Bank of Cleveland.

Hammack said the wide range of current inflation pressures means progress toward the Fed's target may not be immediate. She described the expected timeline for reducing inflation as requiring patience.

"some time" said Beth Hammack, president of the Federal Reserve Bank of Cleveland.

Hammack also addressed inflation expectations, noting that they have remained stable despite inflation staying above target for an extended period. She said maintaining that stability remains important for monetary policy.

"Long-run inflation expectations have stayed remarkably well anchored despite actual inflation being above target for more than five years," said Beth Hammack, president of the Federal Reserve Bank of Cleveland.

The Cleveland Fed president added that stable expectations cannot be assumed indefinitely as inflation remains elevated.

"But I'm not taking that for granted." said Beth Hammack, president of the Federal Reserve Bank of Cleveland.

Hammack warned that continued price pressures could influence economic behavior if they persist. She said policymakers are monitoring the risk that inflation becomes more deeply embedded.

"With each passing month, persistently elevated inflation raises the risks of an inflationary mindset becoming entrenched in the economy," said Beth Hammack, president of the Federal Reserve Bank of Cleveland.