Cleveland Fed President Signals Need for Incremental Rate Hikes

Beth Hammack, president and chief executive officer of the Federal Reserve Bank of Cleveland, told a business-economics gathering in Dallas that the Federal Reserve may need to raise interest rates again to bring inflation back to its 2 percent target.

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The Fed raised rates for the first time in three years at its September meeting, but the minutes left the timing of any further moves unclear. Traders using CME’s FedWatch tool currently price a more than 78 percent chance that rates will stay unchanged at the upcoming policy meeting later this month, while the probability of a hike at the December meeting is near 88 percent.

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• The personal consumption expenditures (PCE) price index was up 3.4 percent year-over-year in August.

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• The core PCE index, which excludes food and energy, rose 3 percent from a year earlier.

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In her prepared remarks, Hammack said a restrictive monetary stance is appropriate given the inputs that shape her reaction function. She cautioned that persistent inflation could embed an “inflationary mindset” in the broader economy, underscoring the need for timely policy action.

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• “When feasible, I generally think it's preferable to make smaller adjustments, and to do so relatively quickly, rather than to wait and risk needing a larger course correction,” — Beth Hammack, federal reserve president

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• “Considering all the inputs that factor into my reaction function, a restrictive monetary policy stance is appropriate to ensure a timely return to 2 percent inflation,” — Beth Hammack, federal reserve president

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• “Long-run inflation expectations have stayed remarkably well anchored despite actual inflation being above target for more than five years,” — Beth Hammack, federal reserve president

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These statements collectively illustrate the Cleveland Fed chief’s view that incremental, prompt rate adjustments are preferable to larger, delayed moves, and that maintaining anchored long-run inflation expectations remains a priority despite inflation running above target for more than five years.

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