Fed’s Hammack says restrictive monetary policy needed to cool inflation

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By Michael S. Derby

NEW YORK (Reuters) -Cleveland Federal Reserve President Beth Hammack said on Thursday monetary policy needs to remain in a position where it can help lower inflation pressures, suggesting she leans against the U.S. central bank cutting interest rates again in the near future.

“This is a difficult time for monetary policy,” given challenges to the Fed’s inflation and job mandates, Hammack said in an appearance before the Pittsburgh Economic Club. “But when I look at both of those things, on balance, I think we need to remain somewhat restrictive to continue putting pressure to bring inflation down towards our target.”

“It seems to me likely that to maintain a restrictive stance of policy, we need to keep rates around these levels,” Hammack said, adding “when I look at the overall performance of the economy, it’s not obvious that monetary policy should be doing more right now.”

Hammack and other Fed officials are weighing whether a rate cut is needed at the central bank’s December 9-10 meeting. The Fed trimmed its benchmark overnight interest rate by a quarter of a percentage point to the 3.75%-4.00% range at the end of October as officials sought to buoy a softening job market while still keeping rates in a place where they can lower still-high inflation.

She noted recently that she opposed the last rate cut due to ongoing inflation concerns, and a number of other Fed officials have also signaled concern about pressing forward with a reduction in borrowing costs next month, citing still-strong price pressures and the impact of the Trump administration’s import tariffs.

After last month’s rate cut, Fed Chair Jerome Powell cautioned another easing next month was not a certainty.

TARIFFS AMONG FACTORS AFFECTING INFLATION

Hammack said on Thursday the economy was on balance doing well amid a balanced job market that’s shown some nascent signs of weakness. She noted that while she wants monetary policy to remain in a place where it can help bring inflation back to the 2% target, she is watching hiring data and will change her monetary policy views if needed.

“If I see more material weakening on the employment side, that would shift my viewpoint,” Hammack said. “But right now, I see persistence in inflation. We’ve been above our target for four and a half years” and “my forecast would have us staying above target for another two to three years.”

Hammack also noted that tariffs were raising price pressures and that she expects more of those higher costs will be passed on to U.S. consumers over time. But she said data also suggests that strong price pressures are being driven by more factors than just tariffs, as evidenced by service-sector price data.

She also downplayed the drop in the U.S. dollar this year.

“It’s important to remember that we started from a place of extreme dollar strength, and so the weakening that we’ve seen this year has largely brought us more in line with a lot of theoretical fair valuations of the currency relative to other currencies,” she said.

(Reporting by Michael S. Derby; Editing by Chris Reese and Paul Simao)