Cleveland Fed President Urges Immediate Rate Increase to Rein in Inflation

Cleveland Federal Reserve Bank President Beth Hammack, one of three dissenters at the Fed’s July meeting, has renewed her call for an immediate interest rate increase, arguing that inflation running above 3% is too high and that current policy is not doing enough to bring it down, according to Reuters.

“I think that we need to act now because I think we need to bring inflation back down to that 2% objective faster than what a longer-term glide path would say with interest rates at this level,” Hammack said Thursday at the Dayton Area Chamber of Commerce in Dayton, Ohio.

According to the report, Hammack said she welcomes the recent softening in inflation data but does not trust that it will continue.

“I love to see that those numbers are coming in lower — that’s a good thing — but I don’t have confidence that we’re going to continue to see that, or that we’re going to see them low enough that it’s going to bring us back down to that 2% number,” she said, according to Bloomberg.

Hammack also warned that strong business demand for credit could add to price pressures.

She said that companies’ appetite to raise funds and keep investing is pushing prices upward, meaning the Fed must tighten its stance enough to bring inflation “from this above-3% number back down to that 2% objective.”

Hammack cited contacts in the Cleveland district, including a Cincinnati retailer raising prices preemptively and workers with steady jobs relying on food banks, according to Quartz.

Next Decision in Mid-September

NBC News reported that the Fed’s rate-setting FOMC is expected to announce its next decision on interest rates in mid-September.

The Bureau of Labor Statistics released its July producer price index reading last week that showed no change from the prior month.

That reading lifted equities and prompted bond traders to pull back on wagers that the Fed would raise rates before year’s end, NBC News reported.

Hammack dissented at the Fed’s July meeting along with Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, all saying the preferred a quarter-point rate increase.

The full committee split 9–3, however, with the majority opting to hold the federal funds rate at its existing 3.5%–3.75% target range.

Hammack said after the voted that she saw inflationary pressures coming from the demand side of the economy, not just supply disruptions, and that business contacts were reporting widening rather than easing price pressures.

It has been more than five years since the Fed hit its 2% inflation target, Hammack noted.

“If it takes us another three or four years to get there, is that OK?” Hammack said.