Federal Reserve rate hikes should proceed in smaller, steadier steps rather than sharper moves Cleveland Federal Reserve President Beth Hammack stated, as fresh inflation data and a widening divide among U.S. policymakers put December’s rate-setting meeting in focus.
Hammack Suggests Modest Policy Increments to Reach Inflation Objective
The central bank still needs to move policy to a restrictive setting to return inflation to its 2% objective, but the available evidence does not call for a more aggressive pace, Hammack said on Nov. 12 at Ohio State University.
“My expectations are that we need to move to a restrictive stance of policy to help bring inflation back down to that 2% objective,” Hammack said, Reuters reported.
Smaller, more frequent increases would be easier for households and businesses to absorb than abrupt moves, she added. She said that a consistent series of modest increments would create less turmoil for the macroeconomy than more drastic adjustments.
In September, the central bank lifted borrowing costs by a quarter of a percentage point—bringing the target range for the federal funds rate to 3.75% and 4.00%—though it opted to keep rates unchanged during its gatherings in July and October. Hammack dissented at both, arguing for another quarter-point increase each time.
“If we were truly behind the curve, that might be an option worth considering, but I don’t think we are behind today,” Hammack said, addressing suggestions for a larger rate increase.
Speaking on Thursday at an Ohio State University event, Federal Reserve Bank of Cleveland President Beth Hammack made it clear that despite expanding inflationary pressures, the central bank does not need to execute a half-percentage-point rate hike all at once at this juncture.
Diverging Views Among Officials
Other Federal Reserve voices have set out a more forceful possibility. Governor Christopher Waller said that monetary authorities ought to contemplate a half-percentage-point adjustment if core inflation fails to moderate, whereas Lorie Logan, head of the Dallas Fed, expressed support for a pair of consecutive quarter-point hikes, The Associated Press reported.
San Francisco Federal Reserve President Mary Daly stated on Friday that her baseline expectation is that the central bank will be forced to raise borrowing costs, especially given that services inflation is trending in the wrong direction alongside persistent price pressures, Reuters reported.
“We’re going to need to, in all likelihood, raise rates; I will deliberate this with my colleagues in December at our meeting and in all future meetings and make the collective decision that we judge is most appropriate for the economy that is evolving,” Daly said at a University of Nevada, Las Vegas Center for Business and Economic Research forecast event.
“My expectation is we're going to have to tighten policy further. Exactly when and how much is still to be decided because we just have to take all the variables that are coming in,” San Francisco Federal Reserve President Mary Daly told CNBC during a live interview with Steve Liesman.
The Bureau of Labor Statistics reported the economy added 165,000 jobs in October while the unemployment rate edged lower to 4.1%, figures substantially better than Wall Street expectations and nearly triple the Dow Jones consensus estimate.
IMF spokesperson Julie Kozack told a regular news briefing that U.S. inflation was not being driven by wage growth but by high energy prices and the continuing artificial intelligence investment boom, The Economic Times reported.
“Our view is that a restrictive policy stance will be necessary going forward to support disinflation and bring inflation gradually back to target. We fully support the Fed’s focus on price stability and its readiness to act as needed to bring inflation down,” Kozack added.
The next scheduled FOMC meeting is Dec. 8–9, with a policy statement scheduled at 2 p.m. Eastern time and a press conference on Dec. 9. Before then, the Bureau of Labor Statistics is scheduled to release November consumer price index data on Dec. 10.
Earlier coverage: Fed's Goolsbee Calls October Inflation Report Borderline Disturbing
