Hammack says Fed needs restrictive rates as AI spending stokes demand

Federal Reserve Bank of Cleveland president Beth Hammack has called for a more restrictive policy stance, saying demand pressures from investment in artificial intelligence are keeping inflation above the central bank's 2% target.

"My expectations are that we need to move to a restrictive stance of policy to help bring inflation back down to that 2% objective, which is critically important," Hammack said on Thursday during an event in Columbus, Ohio.

She tied the warning to the risk of expectations drifting. "If we don't, I worry that an inflationary mindset could start taking hold," she said.

Hammack's remarks point to a split inside the Fed over how far rates must rise, with AI-driven capital spending cited as one source of demand that is complicating the path back to target. For investors, the signal matters for borrowing costs and for the valuations of the technology companies at the centre of that spending.

She did not indicate in the remarks how large a move she favours or when it should come.