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Cleveland Fed President Beth Hammack made one of clearest cases yet for renewed tightening, saying in a Yahoo Finance interview on Monday, that more than one rate hike may ultimately be needed to return inflation to target. Hammack, who dissented from July decision to hold rates at 3.50–3.75% in favor of a 25bp increase, argued that a single move would have limited impact. “One 25 basis point move probably doesn’t do a whole lot for the economy,” she said, adding that “it’s probably some number of [movements],” although she would not prejudge how many or where rates would ultimately peak.

Her argument rests partly on view that current policy is not restrictive enough. Hammack said she does not believe rates at 3.50–3.75% are “meaningfully restricting” economy, noting that businesses are not reporting restraint on investment or growth because of borrowing costs. “So to me that says that now is the time to act,” she said. Hammack compared gradual tightening with pumping brakes before reaching a stop sign rather than waiting to slam them on later, warning that delaying action would leave inflation above 2% for longer and risk making eventual disinflation more costly.

Importantly, July’s weak employment report has not shifted her focus away from inflation. Despite payrolls contracting -23K, Hammack pointed to unemployment at 4.1%, around her estimate of full employment, and said, “I’m still not seeing a problem” in labor market. She was similarly skeptical that inflation will return to target without additional policy restraint: “From where I sit, I just don’t see it coming back on its own.” That puts Wednesday’s July CPI in sharper focus. Core CPI slowed from 2.6% in June and is expected to ease to 2.5% in July; a meaningful downside surprise would challenge Hammack’s assessment, while sticky or stronger inflation would reinforce her case for multiple hikes.

Hammack also pushed back against idea that higher market yields can substitute for Fed action. “Markets are a complement for the Fed. They’re not a substitute,” she said, adding that policymakers must “stand behind our words with our actions when appropriate.” On communication, she argued credibility comes not from extensive forward guidance but from explaining Fed’s reaction function and commitment to 2% inflation. Her remarks underline growing divide ahead of September: weak employment has raised hurdle for another hike, but hawks such as Hammack argue inflation still requires not merely one additional move, but potentially a renewed tightening sequence.

Key Takeaways

• Cleveland Fed President Beth Hammack said more than one rate hike will likely be needed, arguing that “one 25 basis point move probably doesn’t do a whole lot for the economy.”
• Hammack does not view current 3.50–3.75% policy rate as “meaningfully restricting” activity and said “now is the time to act.”
• She remains focused on inflation despite July payrolls falling 23K, saying unemployment at 4.1% is around full employment and “I’m still not seeing a problem” with labor market.
• Hammack also rejected idea that inflation will return to target without further restraint: “From where I sit, I just don’t see it coming back on its own.”
• Her remarks make Wednesday’s July CPI an important test. Softer core inflation would weaken case for renewed tightening, while sticky inflation would strengthen hawkish argument.
• She stressed that “markets are a complement for the Fed. They’re not a substitute,” pushing back against idea that higher bond yields can replace Fed action.
• Comments reinforce widening policy split: weak labor data have raised hurdle for another hike, but some officials still see inflation as requiring a multi-step tightening response.

Eurozone investor confidence improved for a fourth straight month in August, reinforcing signs that sentiment is recovering alongside firmer economic data. Sentix Overall Index rose from -3.1 to 0.9, beating expectations of -1.3 and reaching highest level since February. Current Situation improved from -14.8 to -8.0, while Expectations edged up from 9.3 to 10.3. Sentix linked improvement to stronger-than-expected Q2 growth, recovering industrial production and confidence indicators, rising investment and government spending, as well as partial absorption of confidence shock from Iran war. Still, high energy costs and subdued order books continue to constrain recovery.

Improving growth picture is being accompanied by renewed inflation concern. Sentix Inflation Barometer deteriorated sharply from -13.75 to -29.25, indicating investors are again becoming more worried about price pressures after previous month’s improvement, although concern remains below extremes seen during height of Iran conflict. ECB Policy Barometer likewise fell from -8.25 to -15.25, showing markets expect a more restrictive policy environment. Combination of stronger activity and renewed inflation risks therefore argues against an early monetary-policy “all-clear.”

Germany showed a similar but more fragile improvement. Sentix Overall Index rose for a third month from -19.4 to -11.9, while Current Situation jumped from -39.8 to -28.3 and Expectations improved from 3.5 to 6.0. Recent 0.2% Q2 growth and firmer ifo confidence support stabilization case, but deeply negative current-condition reading shows underlying economy is still weak.

For ECB, broader message is two-sided: growth fears are easing just as inflation concerns are rebuilding, reducing urgency for a more accommodative policy turn.

Data Summary

Euro Area Sentix Investor Confidence

Germany Sentix Investor Confidence

Key Takeaways

• Eurozone Sentix Overall Index improved from -3.1 to 0.9 in August, marking a fourth consecutive monthly rise and highest level since February.
• Current Situation also strengthened from -14.8 to -8.0, while Expectations edged higher from 9.3 to 10.3, showing recovery is becoming broader but still led by forward-looking optimism.
• Sentix cited stronger Q2 growth, improving industrial production and confidence indicators, rising investment and government spending, and partial absorption of Iran-war confidence shock.
• Inflation concerns resurfaced sharply, with Sentix Inflation Barometer falling from -13.75 to -29.25, while Central Bank Policy Barometer weakened from -8.25 to -15.25.
• That combination of better growth and renewed inflation concern argues against an early monetary-policy “all-clear” from ECB.
• Germany also improved for a third consecutive month, but Current Situation at -28.3 still points to weak underlying conditions despite better expectations.

Full Eurozone Sentiment release here.

BoJ’s Summary of Opinions from July 30–31 meeting points to an important shift in policy thinking: debate is moving away from how to lift underlying inflation toward 2% and increasingly toward how to stop it from overshooting. One opinion captured change explicitly, saying focus of monetary policy has shifted from “lifting underlying CPI inflation to 2 percent” to “avoiding further upward deviation in underlying CPI inflation.” That does not mean immediate tightening is automatic, but it suggests reaction function is becoming more sensitive to upside inflation risks.

Case for holding policy steady in July rested largely on transmission lags rather than diminishing appetite for normalization. One member estimated that rate hikes take roughly one to one and a half years to weigh on inflation and economic activity, arguing that BoJ should first assess impact of previous increase. Yet several opinions simultaneously stressed that underlying CPI inflation is approaching, or becoming anchored around, 2%, while financial conditions remain accommodative. On that basis, members argued it remains appropriate to continue raising policy rate and reducing monetary accommodation as conditions warrant.

More hawkish part of discussion concerned pace and size of future hikes. One opinion said tightening could proceed “faster than market expectations” if economic activity, prices and financial conditions justify it. Another argued global environment has entered “a new phase” in which BoJ should respond more nimbly to overseas financial conditions and discuss size of a rate hike rather than adhering to a predetermined pace. Most forceful warning was that waiting carries its own risk: if inflation overshoots, BoJ could later be forced into “rapid and substantial” hikes, delivering what member described as a “double shock” to economy and households.

BoJ therefore appears to be moving from normalization driven by confidence in reflation toward normalization increasingly shaped by risk management against excessive inflation. Middle East developments, expansion in AI-related demand, foreign-exchange moves and rising medium- to long-term inflation expectations were all cited as factors requiring close attention. July hold should therefore not be read as retreat from tightening. If upside price risks strengthen while activity holds up, debate may shift quickly from whether BoJ hikes again to how fast — and by how much — it should move.

Key Takeaways

• BoJ’s policy debate is shifting from creating durable 2% inflation toward preventing inflation from overshooting.
• July hold reflected desire to assess lagged effects of previous hike, with one opinion estimating transmission takes around one to one and a half years.
• Several members still judged financial conditions accommodative and argued BoJ should continue raising policy rate as underlying CPI approaches 2%.
• One opinion warned pace of hikes could become “faster than market expectations” if economic activity, prices and financial conditions justify it.
• Debate is also broadening from timing to size of future hikes, with one member saying BoJ has entered a “new phase” requiring more nimble policy.
• Strongest hawkish argument was that waiting too long could force rapid and substantial hikes later, creating a “double shock” for economy and households.
• Middle East developments, AI-related demand, foreign-exchange moves and rising medium- to long-term inflation expectations are key upside risks to watch.

Full BoJ Summary of Opinions here.