Fed's Hammack says restrictive policy appropriate to return inflation to 2%
Beth Hammack, president of the Federal Reserve Bank of Cleveland, indicated on Monday that tighter monetary policy might be needed to bring down inflation and that the central bank should make fast, incremental adjustments. She was speaking in prepared remarks delivered at the National Association of Business Economics annual gathering.
"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 Hammack, a voting member of the Fed's policymaking committee. She added that, considering all the inputs that factor into her reaction function, a restrictive monetary policy stance was appropriate to ensure a timely return to 2 percent inflation.
Hammack said that with the breadth of current inflationary pressures she expects it will take some time for annual price growth to reach the Fed's goal. The personal consumption expenditures price index came in at 3.4% year on year in August, with the core reading, which strips out volatile food and energy costs and is favoured by the Fed, at 3%. "Long-run inflation expectations have stayed remarkably well anchored despite actual inflation being above target for more than five years," she said. "But I'm not taking that for granted." She added that persistently elevated inflation raises the risk that "an inflationary mindset" becomes entrenched in the economy with each passing month.
Traders priced in a more than 78% likelihood that the central bank keeps rates unchanged at its policy meeting later this month, according to CME's FedWatch tool, while seeing a nearly 88% chance of an increase at the Fed's final meeting of the year in December. Minutes of the Fed's September meeting signalled that officials could vote to raise rates again, without giving a clear indication of when such a decision would come. The Fed last month voted to increase interest rates for the first time in three years.
