Hammack Warns Fed May Need to Act Soon as Inflation Moves Higher

Federal Reserve Bank of Cleveland President Beth Hammack delivered one of the more hawkish messages from a Fed official in recent weeks, warning that inflation risks are becoming increasingly difficult to ignore. While she stopped short of advocating an immediate rate hike, Hammack said the central bank may need to respond if current inflation trends persist. “If recent trends continue, it may soon be appropriate to act,” she said, even as she acknowledged that holding rates steady for now remains a reasonable course.

A key concern for Hammack is that inflation pressures are broadening rather than fading. She argued that “inflation is too high and is moving higher,” pointing to rising costs across goods and services as well as higher energy prices stemming from disruptions linked to the Iran conflict. According to Hammack, “there is a growing risk that inflation could remain elevated” if businesses continue passing higher costs through to consumers. She also questioned whether current policy settings are restrictive enough, saying she is increasingly concerned that monetary policy “may not be sufficiently restrictive to bring inflation down to 2 percent.”

The remarks suggest that inflation has once again become the dominant concern inside parts of the Fed. Hammack explicitly said she is “more concerned about the growing risks of persistently elevated inflation than the risks to full employment,” a notable statement given recent debates about growth and labor market conditions. With unemployment still near full-employment levels and financial conditions supportive of activity, the hurdle for discussing rate cuts remains extremely high. Instead, markets may need to pay closer attention to the possibility that the Fed’s next move, while not imminent, could eventually be another hike.