MNI: Fed's Hammack Wants To Hold Rates Steady For Some Time
MNI (WASHINGTON) - Federal Reserve Bank of Cleveland President Beth Hammack is the latest U.S. central banker to endorse patience in cutting interest rates further after the FOMC voted last month to maintain the fed funds rate target at 4.25%-4.5%, citing the risk of sticky inflation and uncertainty over new government policies.
Several Fed officials last week warned the Trump administration's plans to impose tariffs on the U.S.'s largest trading partners could add to upside risks for inflation and said they were in wait-and-see mode on interest rates.
"As long as the labor market remains healthy, I am looking for broad-based evidence that inflation is sustainably returning to 2% before adjusting policy further," Hammack said in remarks prepared for a University of Kentucky conference Tuesday.
"Given current economic conditions, it will likely be appropriate to hold the funds rate steady for some time. A patient approach will allow us to assess the health of the labor market, whether inflation is returning to 2% on a sustained basis, and how the economy is performing in the current rate environment." (See: MNI INTERVIEW: Fed Likely On Hold For Most Of 2025-Kroszner)
TARIFFS AND POLICY UNCERTAINTY
In a speech titled "Show Me The Low Inflation," Hammack said the Fed's 2% inflation target is not yet in sight and upside risks abound.
Ongoing strength in consumer spending may not be consistent with easing inflation, and a number of proposed changes in regulation, tax and spending policies, immigration policies, and tariffs from President Donald Trump and the Republican-led Congress have unknown economic effects, she said.
She said she intends to analyze policies as they're implemented, gather information on their impact from business and community contacts, review relevant academic literature and economic models and observe incoming financial and economic data before drawing firm conclusions about the appropriate policy response.
It's appropriate to be patient in assessing the ultimate effect of tariffs, depending on how long they'll be in place, the effect on import prices and how much will be passed through to consumer prices. Tariffs could also weigh on growth and it's unclear whether their effect on inflation is one-off or more persistent, she said.
"Given the recent history with elevated inflation, the risks to the inflation outlook appear skewed to the upside, and this could delay a return to 2% and further risk embedding elevated inflation into the economy," she said. (See: MNI INTERVIEW: Fed To Look Through Trump Price Bumps-Shelton)
MODESTLY RESTRICTIVE
Hammack judged monetary policy to be "only modestly restrictive" given current strong economic growth, a low unemployment rate and still-elevated inflation.
"Broad financial conditions indices are accommodative, something which does not appear consistent with a view that policy is meaningfully restrictive," she said. "But considerable uncertainty surrounds this assessment, and we may be at or close to a neutral setting already."