Federal Reserve Bank of Cleveland President Beth Hammack said Tuesday that the U.S. banking system is in generally good condition, but she warned that developments in the Treasury market deserve careful attention.
Speaking in Columbus, Ohio, Hammack said plainly, "The banking system looks pretty good." At the same time, she highlighted a trend she is monitoring: high levels of government borrowing appear to be prompting hedge funds to increase their own borrowing to purchase Treasuries, a build-up of leverage she said she is "continuing to watch closely."
Hammack characterized the U.S. government's fiscal path as unsustainable and reiterated her concern about the associated increase in market leverage. Her comments focused on the specific mechanics she is tracking rather than on prescribing market actions.
On inflation, Hammack signaled apprehension about the possibility that higher price growth could become entrenched in the economy, while noting that, to date, inflation expectations have remained contained. She emphasized that it is "critically important" to reach the Federal Reserve’s 2% inflation objective before taking additional steps to alter interest rates.
The Cleveland Fed president also addressed institutional foundations, calling central bank independence "critical" and saying it "delivers better outcomes." She added that the Fed is both "independent and accountable," underscoring governance as a priority alongside monetary goals.
Turning to supervisory and market plumbing issues, Hammack observed that a meaningful number of banks are still not set up to use the Fed’s discount window. She suggested this situation "makes sense for some firms," while indicating that the Fed aims to make access to the discount window easier.
Finally, Hammack raised a regulatory blind spot: she noted that regulators do not have sufficient insight into the rapidly expanding private credit sector. Her remarks called attention to potential gaps in oversight as that market grows.
This account summarizes Hammack’s publicly stated views on bank health, Treasury market leverage, inflation risks, central bank independence, discount window access, and regulatory visibility into private credit.