Federal Reserve Bank of Cleveland President Beth Hammack said Tuesday that the central bank may need to raise interest rates if inflation does not moderate. In an interview with CNBC she described her approach to policy as open-minded and conditional on incoming data.
Hammack told the network that if inflation continues at elevated levels without any restraint from current policy, the Fed may have to lift rates to bring inflation down. She stressed that inflation remains too high and pointed out that core inflation has been elevated, adding that the problem is not confined to energy prices.
The Fed held interest rates steady this month, but policymakers expect a hike later this year amid concerns that inflation is running above the U.S. central bank's 2% target. Hammack noted several areas that are weighing on price pressures, with particular attention to core services inflation.
She also attributed some upward pressure on inflation to investment in artificial intelligence. Hammack said the job market is near full employment and that economic growth appears strong. Those conditions, she warned, mean current Fed policy may not be restrictive enough if consumer data remains solid.
Hammack emphasized she will not prejudge meeting outcomes and that she will enter Fed gatherings with an open mind. She highlighted the importance of central bankers being transparent about their reaction function - explaining how they would respond to different economic developments.
Separately, the U.S. dollar was headed for its biggest monthly gain in nearly a year, a move that has implications for commodities such as gold because a stronger dollar makes gold more expensive for overseas buyers.
Summary
Hammack signaled readiness to support further tightening of monetary policy if elevated inflation continues, calling out core and services inflation as areas of concern, noting AI-related investment has added upward pressure, and stressing the current strength of the labor market and growth as factors that could render policy insufficiently restrictive.
Key points
- Policy stance is data-dependent - Hammack will consider rate hikes if inflation remains high.
- Core and services inflation are notable pressure points; AI investment is cited as a contributing factor.
- Market and sector impacts include potential effects on financial markets and commodities - for example, a stronger U.S. dollar can make gold pricier for foreign buyers.
Risks and uncertainties
- Persistent elevated inflation could force the Fed to raise interest rates, affecting borrowing costs across the economy and financial markets.
- If consumer data remains strong, current policy may not be restrictive enough, creating uncertainty for sectors reliant on consumer spending.
- A stronger U.S. dollar, which has been experiencing significant monthly gains, increases price pressure on dollar-denominated commodities such as gold for overseas purchasers.
Note: This report reflects only the information provided in Hammack's public comments and the recent market movements referenced, without additional inference or external data.