Cleveland Fed President Beth Hammack said Monday that tighter monetary policy may be necessary to rein in inflation, and the central bank should make swift and gradual adjustments.
“If possible, we generally think it is better to make small adjustments relatively quickly, rather than waiting and risking the need for a major course correction,” Hammack, a voting member of the Fed’s policymaking committee, said in prepared remarks for the National Association for Business Economics’ annual meeting.
“Given all the inputs factored into my reaction function, a restrictive monetary policy stance is appropriate to ensure that inflation returns to 2% in a timely manner,” Hammack added.
Hammack’s comments suggest further rate hikes could be in the near future. Fed officials indicated in the minutes of their September meeting that they may vote to raise rates again, but gave no clear indication of when such a decision would be made.
Last month, the Federal Reserve decided to raise interest rates for the first time in three years.
According to CME’s FedWatch tool, traders are pricing in a more than 78% chance that the central bank will leave interest rates unchanged at its policy meeting later this month. But they see a nearly 88% chance of a rate hike at the Fed’s last meeting of the year in December.
Hammack said persistent inflation poses challenges for consumers, businesses and monetary policy makers alike. Federal Reserve Bank President Cleveland said current inflationary pressures are so “widespread” that it will “take some time” to bring annual inflation down to the central bank’s 2% target.
The personal consumption expenditure price index in August was 3.4% compared to the same month last year. The so-called core value of the Fed’s preferred index, which strips out volatile food and energy costs, was up 3% from a year earlier.
“Long-term inflation expectations have remained remarkably stable, even though actual inflation has been above target for more than five years,” Hammack said. “But I don’t take that for granted.”
“With each passing month, we see a sustained rise in inflation, increasing the risk that an inflationary mindset will become entrenched in the economy,” he said.
