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Cleveland Fed’s Hammack argues current rates need more tightening
Hammack said a single 25 basis point move would have limited impact, citing that she does not see current 3.50% to 3.75% rates as meaningfully restrictive.
Cleveland Fed President Beth Hammack said in remarks to Yahoo Finance that more than one rate hike may ultimately be needed to bring inflation back to the Fed’s 2% target, arguing that the current policy stance is not restrictive enough.
Hammack, who dissented from the July decision to hold rates at 3.50% to 3.75%, said one 25 basis point move would likely do little for the economy. She compared gradual tightening to pumping the brakes before reaching a stop sign, warning that delaying action could leave inflation above 2% for longer and make later disinflation more costly.
She pointed to what she sees as a lack of borrowing cost restraint on investment and growth, and said she is not concerned that weak employment data has shifted her focus away from inflation. Hammack noted payrolls contracting by 23K and said unemployment at 4.1% is around what she considers full employment, adding that she is still not seeing a problem in the labor market.
Her comments also placed extra emphasis on Wednesday’s July CPI, with core inflation expected to ease to 2.5% from 2.6% in June. Hammack said higher market yields cannot replace Fed action, arguing that markets are a complement rather than a substitute and that policymakers must align their actions with their communication about the reaction function.