Fed's Hammack warns inflation expectations deterioration could require Fed response

By Michael S. Derby

Oct 15 (Reuters) - ‌Federal Reserve ​Bank of ​Cleveland President Beth Hammack said on Thursday the Fed might need to hike interest rates more aggressively if there were to be ‌a notable deterioration in the public’s inflation expectations.

“What I worry ⁠about is, if you get this inflationary mindset, if you get these expectations that these price ‌pressures become more and more ‌persistent, it makes it much harder for monetary policy to do the work that we need to do, and we might need to move even ​more than if you don't have an inflationary mindset set in,” Hammack said at an event held by Goldman Sachs in New York.

Hammack did not ⁠give firm guidance about what the current situation means for monetary policy, but the official, who holds ​a role on the rate-setting Federal Open Market Committee, has been a strong and early supporter of the central bank countering ​high inflation pressures with rate rises.

The Fed ‌raised its interest rate target by a quarter percentage point to between 3.75% and 4% last month and is widely expected ⁠to raise rates again by the end of the year. Inflation data released this week showed worse-than-expected price pressures, which caused some market watchers to increase the odds that ⁠the Fed might raise rates at the FOMC meeting on October 27-28.

Hammack’s comments on Thursday ​were among the last public remarks scheduled by central bankers ahead of the quiet period that precedes the month-end meeting. Markets are closely watching a speech scheduled for late Thursday ‌by Fed Chairman Kevin Warsh to see if he offers any monetary policy clues.

Hammack also said in her appearance that ‌financial conditions seem roughly neutral right now amid investments in things like technology that ⁠are going full speed ahead ‌despite rising borrowing costs.

“I'm not ​feeling that there's restraint coming from financial conditions at this…point in time,” the official said.

(Reporting by Michael S. Derby; Editing by ‌Cynthia Osterman)

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