Cleveland Fed President Hammack says rate hikes are possible — CNBC

In the United States, Cleveland Federal Reserve Bank President Beth Hammack said that tighter monetary policy may be needed to bring inflation down to the 2% target. She also advocated for swift and gradual rate adjustments, CNBC reports.

Gradual rate changes

Hammack, who has voting rights on the Federal Reserve's Open Market Committee, said that when possible, it is more appropriate to make smaller changes relatively quickly than to wait and risk the need for a larger adjustment. According to her, restrictive monetary policy is appropriate for bringing inflation back to 2% in a timely manner.

The official spoke at the annual meeting of the National Association for Business Economics. Her comments came after officials indicated in the minutes of the Fed's September meeting that another rate increase was possible, without specifying the timing of such a decision.

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Inflation and expectations

According to the personal consumption expenditures price index, inflation stood at 3.4% year-on-year in August. The core measure, which excludes volatile food and energy prices and to which the Fed pays particular attention, rose by 3% compared with a year earlier.

Hammack noted that the breadth of inflationary pressures means that returning annual price growth to 2% will take time. She stressed that long-term inflation expectations had remained well anchored despite inflation exceeding the target level for more than five years. At the same time, she said, every month of persistently high inflation increases the risk of inflationary thinking becoming entrenched in the economy.

Last month, the Fed raised interest rates for the first time in three years. According to CME FedWatch, traders put the probability of rates remaining unchanged at the next meeting at more than 78%, while the probability of an increase at the final meeting of the year in December was nearly 88%.