Fed's Hammack Favors Gradual Rate-Hike Path to Lower Inflation

Tiger Newspress
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Cleveland Federal Reserve President Beth Hammack said on ​Thursday the US central bank has more work to do to get inflation down to its ‌2% target, as price pressures remain unacceptably high.

"I expect that monetary policy will need to move to a restrictive stance to bring inflation back to 2% in a timely manner," Hammack said in the text of a speech prepared for delivery before an event in ​Zurich.

While Hammack did not say when she would like the Fed to next raise rates, she noted ​that she prefers "getting to that stance through more frequent smaller adjustments when possible, something which ⁠would be less disruptive to households, businesses, and financial markets."

Gradual increases "would also reduce the risk of having policy fall ​behind where it needs to be and an inflationary mindset take hold," Hammack said.

The Fed last week left its benchmark ​interest rate within the 3.75%-4.00% range, even as policymakers acknowledged that inflation was too high. The Fed raised rates in September and financial markets broadly expect another increase in December.

Hammack, along with Fed Governor Lisa Cook, dissented in favor of a rate hike last week. ​Hammack, who also dissented in late July when the Fed left rates unchanged, has argued that monetary policy and the ​broader scope of financial conditions are not providing the needed restraint on the economy to bring inflation to heel. That situation ‌means the ⁠Fed needs to push short-term borrowing costs higher.

In her speech in Zurich, Hammack said central bank independence is critical to achieving stable inflation while adding that "the Fed has earned credibility" as an institution that operates on evidence and economic data rather than political pressure.

DOLLAR'S RESERVE CURRENCY STATUS

Hammack devoted much of her remarks to the dollar and its critical role ​on the global stage.

She said ​the dollar remains the ⁠world's reserve currency "by a wide margin" due to the strength of US institutions and the country's legal system.

"The dollar's status depends on preserving the fundamental qualities that underlie its ​strength, qualities that provide a solid foundation for any currency," Hammack said, adding that "this ​includes maintaining central ⁠bank independence so we can deliver on our mission."

Hammack also said she does not foresee the dollar losing its role. "It's possible that the dollar's share of global reserves has peaked, but it's difficult to envision imminent major changes to its international ⁠role."

She ​also said cryptocurrencies do not appear to be in a position to ​dethrone the greenback.

"The price volatility of cryptocurrencies makes them a less certain store of value than the dollar," Hammack said. "Until these issues are resolved, ​I remain skeptical that they pose a threat to the dollar's status."

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