In a recent interview, Cleveland Federal Reserve Bank President Loretta M. Hammack expressed her chickens-shy approach to possible interest rate cuts. She highlighted the still-present inflationary pressures that led to this painful decision. Hammack’s CNBC, Squawk Box Europe Hammack When asked about rate flexibility, Hammack voiced her deep reluctance to drop rates. She thinks inflation is still the biggest threat to the economy.
Recent data indicates that U.S. core inflation remained relatively stable in August, prompting ongoing discussions among federal officials about appropriate monetary policy responses. Specifically, the core personal consumption expenditures (PCE) price index increased on a month-on-month basis of 0.3% this time. At the same time, the annual headline inflation rate soared to 2.7%. These figures underscore the ongoing inflation pressures that officials such as Hammack, pictured above, are keeping a watchful eye on.
Hammack’s remarks come in the wake of Federal Reserve Chair Jerome Powell’s speech on September 23 to business leaders in Providence, Rhode Island. During his address, Powell outlined the complexities of the current economic landscape, stating, “Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation.” He further noted that “two-sided risks mean that there is no risk-free path,” reinforcing the notion that navigating current economic conditions requires careful consideration.
The balance struck between inflationary and employment priorities remains critical in this ongoing policy debate. But Hammack isn’t looking to cut rates. This caution underlines the Federal Reserve’s delicate approach to fostering continued economic expansion while managing inflationary pressures. First, she warned that inflation risks do remain. Thus, it’s prudent to err on the side of a more restrictive monetary policy posture.
As the narrative around rising interest rates continues to progress, Hammack’s stance is surfacing related fears that are widely echoed by economists and other market analysts. There is no doubt that the coming months will be critical in determining our economic trajectory, and the Federal Reserve’s decisions will be central to that story.