CORRECTED-MNI: Fed's Hammack-Near Or At Time To Slow Rate Cuts
MNI (WASHINGTON) - (Corrects to show Hammack is an FOMC voter this year, not next)
The time is near or perhaps now to slow the pace of interest rate cuts because it's unclear how restrictive monetary policy actually is and the neutral rate could be higher, Cleveland Fed President Beth Hammack said Friday.
"I believe we are at or near the point where it makes sense to slow the pace of rate reductions. Moving slowly will allow us to calibrate policy to the appropriately restrictive level over time given the underlying strength in the economy," she said in prepared remarks.
"Indeed, since my initial foray into forecasting in the September Summary of Economic Projections, inflation, growth, and the labor market have all been stronger than I and the SEP median had expected. To me, this situation calls for a slower pace of rate cuts relative to my September forecast," said Hammack, a voter on the Federal Open Market Committee this year. (See MNI INTERVIEW: Fed Closer To Slowing Rate Cut Pace-Kaplan)
SOMEWHAT RESTRICTIVE
She said it's hard to know how restrictive policy is because of great uncertainty in assessing the neutral rate of interest -- perhaps not that much.
"As I take into account strong economic growth, the low unemployment rate, still-elevated inflation, and signals from financial markets, among other factors, my overall view is that monetary policy is only somewhat restrictive today," said Hammack. "Achieving our goals means seeing further convincing evidence that inflation is indeed continuing to decline to 2% while sustaining a healthy labor market."
The path of disinflation has been uneven, she added, but there is reason to hope for additional relief ahead.
"The monthly inflation readings in the last two months moved up from where they had been this summer, indicating that the disinflation process has slowed. While some components’ inflation rates have returned to where they were before the pandemic, when inflation was running at or below 2%, other components’ inflation rates have not," said Hammack.
"One indicator we are watching closely is the ability of our business contacts to raise prices. Currently, our contacts are reporting that it has become more challenging to raise their prices, something which may foreshadow further easing of price pressures ahead."