Fed’s Hammack calls for quick move to restrictive policy

Investing.com -- Cleveland Federal Reserve President Beth Hammack said Monday the US central bank should move "relatively quickly" to a restrictive monetary policy stance to control inflation, which she described as increasingly broad-based and affecting company pricing decisions.

"I see inflation pressures as relatively broad-based rather than concentrated in one component. Energy has been making headlines this year, with prices rising for oil, retail gasoline, and diesel, but it isn't the whole story," Hammack said in prepared remarks for a National Association for Business Economics conference. She referenced recent district conversations with companies planning to raise prices faster than their input costs are increasing.

"A restrictive monetary policy stance is appropriate to ensure a timely return to 2% inflation," Hammack said. "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" if inflation becomes more persistent or inflation expectations start to rise.

Research by her staff places underlying inflation currently in the mid-to-high 2% range. Hammack said her baseline forecast indicates inflation will take time to return to 2%, even with appropriate monetary policy.

She pointed to demand-side pressures from AI infrastructure development raising prices on computer, electronic, and high-tech components. This increases costs for data centers and projects using similar components in aviation, electricity production, and construction, Hammack said.

Current data does not point to "an economy in which the crew are exhausted and the boat is taking on water. It reads, instead, as one that can handle a tighter hand on the tiller to finish the job on inflation," she added.

Investors expect the Fed to maintain its policy rate in the 3.75%-4.00% range at its October 27-28 meeting. Hammack, a voting member of the central bank's policy committee, has been among the more hawkish Fed voices and dissented in favor of raising rates at the July meeting. Her colleagues, including Fed Chairman Kevin Warsh, joined her in voting to raise rates in September.

Hammack said she believes policymakers should continue explaining their views, particularly their likely response to different economic data. Warsh has said he prefers a "quieter" Fed and opposes forward guidance or firm commitments to future policy decisions.

Hammack said providing a "reaction function" helps households and firms understand how policymakers process new data and plan accordingly. "I have a responsibility to the public to explain why I make the decisions I make. Transparency has the benefit of allowing consumers, businesses, and financial markets to make better-informed decisions," she said.

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