Cleveland Fed President Beth Hammack Advocates Incremental Rate Hikes
Beth Hammack urged the Federal Reserve to implement smaller, more frequent interest rate adjustments to combat broad-based inflation and reach a 2% target.
Federal Reserve Bank of Cleveland President Beth Hammack advocated for a quick transition to a restrictive monetary policy during a speech at the National Association for Business Economics annual meeting in Cleveland on October 12. Hammack argued that smaller, more frequent interest rate adjustments are preferable to delaying action, which she warned could necessitate a larger course correction later.
Hammack characterized current inflationary pressures as broad-based, noting that AI infrastructure buildouts are driving up costs for aviation, construction, and high-tech data center components. She stated that a restrictive stance is necessary to prevent an inflationary mindset from becoming entrenched and to ensure a return to the central bank's 2% target. While she described current U.S. Treasury yields as modest by historical standards, she cautioned that a return to 3% mortgage rates would likely signal economic distress.
These remarks follow a September decision by the Federal Reserve System to raise the benchmark rate to a target range of 3.75%–4%, the first increase in three years. This move was driven by AI demand and price increases linked to the Iran war. Hammack previously dissented in July by favoring a quarter-point increase. While she emphasized the need for transparency in her reaction function, Federal Reserve Chairman Kevin Warsh has expressed a preference for a quieter approach and opposes firm forward guidance.
