Cleveland Fed’s Hammack supports keeping rates around current ‘barely restrictive’ level
Cleveland Federal Reserve President Beth Hammack signaled Thursday that she thinks the central bank may be nearing the end of a brief rate-cutting cycle.
The policymaker told CNBC that he thinks the current level of interest rates is “very slightly restrictive, if not restrictive at all” when it comes to economic impact.
The restraint is an important benchmark for Fed officials, who are ideologically divided over whether labor market weakness or inflation is the greater threat. Hammack is more in the hawkish camp when it comes to inflation, favoring higher rates and more restrictive policies as a bulwark against another rise in prices.
“I think we need to maintain a modest, somewhat restrictive policy stance to make sure that we continue to reduce inflation to our 2% target,” he told CNBC’s Steve Liesman on “Squawk on the Street.” “Monetary policy, in my view right now, is hardly restrictive at all, and I think we need to make sure that we maintain a somewhat restrictive stance for the money to come into play.”
Hammack said he thinks the current federal funds rate, targeted at 3.75%-4%, is “around a neutral rate” and that it doesn’t need to fall further.
Hammack will become a voting member of the Federal Open Market Committee next year.
The Fed’s next meeting is Dec. 9-10, and market expectations have shifted from a near certainty that the committee will approve a percentage point cut for the third consecutive quarter to pricing in a roughly 60% chance the committee will stick to that decision, CME Group said. FedWatch Follower of futures prices. Minutes of the October meeting, released Wednesday, detailed the sharp divide among committee members.
While focusing on inflation, Hammack expressed concern about current price levels, noting that conversations he and his staff have had in the Cleveland area show inflation concerns as well as labor market pressures causing difficulties for households to make ends meet.
“What we hear from workers is that if they have a job, they keep it for the rest of their lives,” he said. “We’re in this slow, low-hiring, low-firing environment. But I’ve also heard that the money coming in isn’t increasing as much as it used to be. What used to cost $30 now costs $50, and so … the inflationary pressure is still very pronounced for them.”
Referring to the September nonfarm payrolls report published on Thursday, Hammack described the picture as “mixed” as it showed both higher-than-expected employment growth and an increase in the unemployment rate.
Correction: Hammock will be a member of the FOMC that sets the rating next year. An earlier version of this story misstated when he would enlist. The story also misstated a number. Hammack said: “What used to be $30 is now $50…”
