Beth Hammack says Fed should raise rates to curb inflation

Beth Hammack rate hikes are back in focus after the Cleveland Federal Reserve president said Thursday that policymakers should act against inflation, though she did not commit to a particular upcoming decision. For investors following the Fed, the key distinction is that Hammack stated an individual policy preference, not a new decision by the rate-setting committee.

Speaking to CNBC from the Federal Reserve’s annual Jackson Hole symposium in Wyoming, Hammack said she believed the time had come to add policy restraint. She said inflation was running at about 3% on an annualized basis, still above the Fed’s 2% objective, even as monthly price increases had recently slowed, CNBC reported.

Hammack said she does not see the current policy setting as restrictive in financial conditions or in her discussions with market participants. Bloomberg similarly reported that she said rates were not slowing the economy enough for price pressures to fade on their own.

Why does Beth Hammack want the Fed to raise rates?

Hammack’s case rests on her view that inflation has remained above the Fed’s objective for too long and could become more difficult to reduce if officials wait. She said prolonged misses of the inflation goal risk allowing an “inflationary mindset” to take hold with the public, according to CNBC.

She has made the same argument throughout August. In an Aug. 10 interview, Hammack said one quarter-percentage-point increase would probably have limited economic effect, while declining to say how many increases she thought would be needed, Yahoo Finance reported. On Aug. 13, she said businesses’ appetite to borrow and invest could add to price pressure and called for immediate action, Reuters reported.

Her remarks describe her assessment of the economy, rather than a settled outlook for the full Federal Open Market Committee, or FOMC, which sets Fed policy.

What happened at the Fed’s July meeting?

At its July meeting, the FOMC kept its federal-funds target range at 3.50% to 3.75%, CNBC and Reuters reported. Hammack, a voting member this year, was among three officials who dissented and preferred a 0.25-percentage-point increase.

That vote is the latest confirmed committee action in the reporting. Hammack’s Aug. 27 comments did not announce another increase or establish that the committee had agreed to one.

What does a Fed rate hike do?

The federal funds rate is the Fed’s target for the interest rate on overnight borrowing between banks. The Federal Reserve says raising that target is monetary tightening: a policy step used when inflation is too high or the economy is overheating.

According to the Fed, changes in the target range normally affect other interest rates and broader financial conditions, which in turn influence household and business spending, economic activity, employment and inflation. Hammack’s argument is that additional restraint is needed to return inflation to the Fed’s 2% goal.

The Fed is charged by Congress with pursuing maximum employment and stable prices. Its next policy choice will be made by the full FOMC, not by any one official’s remarks.

This story draws on original reporting from CNBC.