Fed’s Hammack says she’d prefer to have rates on the restrictive side of neutral

Federal Reserve Bank of Cleveland President Beth Hammack reaffirmed her hawkish position on monetary policy Thursday, stating that while she doesn’t currently support raising interest rates, she believes the Fed should maintain a restrictive policy stance to address persistent inflation.

In a Reuters interview following a speech to the Economic Club of New York, Hammack emphasized her preference for keeping monetary policy “on the restrictive side of neutral.” Her reasoning centers on inflation remaining elevated and moving in the wrong direction, despite some emerging weakness in the labor market.

While Hammack acknowledged inflation pressures remain too high, she clarified that raising rates “is not my base case right now.” However, she outlined specific conditions that could shift her perspective. If upcoming data reveals the labor market is stronger than currently assessed—particularly if recent payroll weakness stems primarily from immigration flow changes rather than genuine cooling—she might reconsider. Similarly, if inflation continues at elevated levels without declining, rate increases could become necessary.

Hammack, who doesn’t currently hold a voting position on the Federal Open Market Committee, was one of the few dissenters opposing the Fed’s recent quarter-point rate cut to the 3.75%-4.00% range. She has consistently argued that the Fed’s greater shortfall has been on the inflation side of its dual mandate rather than employment.

Regarding the labor market, Hammack characterized the current environment as “low-hiring, low-firing” based on feedback from business contacts. While acknowledging hiring challenges, she said she doesn’t assign “high odds on a labor market downturn” at this time.

The Cleveland Fed president noted that significant labor market deterioration would suggest current policy isn’t as restrictive as believed and might warrant additional easing. However, she emphasized she’s not seeing such warning signs yet.

Financial markets continue to expect another Fed rate cut in December, though Chair Jerome Powell has cautioned that such action isn’t guaranteed.