At the end-of-October policy meeting, the Fed held its target rate range at 3.75% to 4.00%, with a 10–2 vote. Cleveland Fed President Beth Hammack was one of the two dissenters who opposed holding rates steady, arguing instead for a 25-basis-point hike. On Thursday, she made the case again in Columbus, Ohio: progress on bringing inflation down has largely stalled, and policy needs to tighten further.
The October CPI released this week rose 0.4% from the previous month, versus market expectations of 0.3%. Core CPI rose 0.3%, also above the expected 0.2%; it has now stayed at 0.3% for three months in a row. Overall CPI was still up 3.7% year over year in September, a long way from the 2% target. Hammack’s view is straightforward: progress on reducing inflation has stalled, and prices are moving away from the target. She also pointed to the AI investment boom as a source of upward pressure on demand: tech companies are continuing to build data centers, driving up demand for electricity, chips, and related infrastructure, which could push up the prices of some goods and services. She believes the Fed has tools to deal with this kind of shock, provided policy is tight enough to keep businesses and consumers from gradually assuming that prices will just keep rising. Once those expectations become entrenched, it will be harder to bring inflation back down to 2%.
She supports raising rates, but disagrees with Governor Waller on how quickly to move. Waller has said that if core CPI remains at 0.3% or higher, the Fed could raise rates by 50 basis points at once in December to preserve its credibility on fighting inflation. Hammack thinks it is too soon to say policy is clearly behind the curve, so there is no need for such a large move right away. If policy does fall behind, however, she is open to considering a bigger adjustment. She would rather move more frequently in smaller steps, giving households and businesses time to absorb borrowing costs.
Within the Fed, views are gradually converging on the need to tighten further; the debate is over how quickly. Some argue for more decisive action because inflation has remained above target. Others worry that hiking too aggressively all at once could roil financial markets and do too much damage to growth. October’s stronger-than-expected nonfarm payroll growth and falling unemployment have added another reason to keep tightening. Markets have largely priced in a 25-basis-point hike in December, while expectations of a larger increase remain limited. Hammack said she would go into the December 8–9 meeting with an open mind. As the meeting approaches, the focus has shifted from whether to raise rates again to how quickly to do so.
The October CPI released this week rose 0.4% from the previous month, versus market expectations of 0.3%. Core CPI rose 0.3%, also above the expected 0.2%; it has now stayed at 0.3% for three months in a row. Overall CPI was still up 3.7% year over year in September, a long way from the 2% target. Hammack’s view is straightforward: progress on reducing inflation has stalled, and prices are moving away from the target. She also pointed to the AI investment boom as a source of upward pressure on demand: tech companies are continuing to build data centers, driving up demand for electricity, chips, and related infrastructure, which could push up the prices of some goods and services. She believes the Fed has tools to deal with this kind of shock, provided policy is tight enough to keep businesses and consumers from gradually assuming that prices will just keep rising. Once those expectations become entrenched, it will be harder to bring inflation back down to 2%.
She supports raising rates, but disagrees with Governor Waller on how quickly to move. Waller has said that if core CPI remains at 0.3% or higher, the Fed could raise rates by 50 basis points at once in December to preserve its credibility on fighting inflation. Hammack thinks it is too soon to say policy is clearly behind the curve, so there is no need for such a large move right away. If policy does fall behind, however, she is open to considering a bigger adjustment. She would rather move more frequently in smaller steps, giving households and businesses time to absorb borrowing costs.
Within the Fed, views are gradually converging on the need to tighten further; the debate is over how quickly. Some argue for more decisive action because inflation has remained above target. Others worry that hiking too aggressively all at once could roil financial markets and do too much damage to growth. October’s stronger-than-expected nonfarm payroll growth and falling unemployment have added another reason to keep tightening. Markets have largely priced in a 25-basis-point hike in December, while expectations of a larger increase remain limited. Hammack said she would go into the December 8–9 meeting with an open mind. As the meeting approaches, the focus has shifted from whether to raise rates again to how quickly to do so.
