Hawkish voices within the Federal Reserve continue to grow louder. Cleveland Fed President Beth Hammack stated on Tuesday that while keeping interest rates unchanged currently remains reasonable, if recent high inflation data continues, policymakers may need to act soon—including considering further rate hikes—to address the risk of persistently high inflation.

According to Bloomberg, Hammack noted at an event in Cleveland that her concerns about inflation are now far greater than those about the labor market. The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 3.8% year-on-year in April, marking the largest increase since 2023 and remaining above the 2% policy target for over five consecutive years. She warned that waiting for definitive evidence of entrenched inflation would necessitate a more significant and costly policy adjustment later.

However, she also indicated that the Fed cannot focus solely on a single inflation metric and has not yet seen signs of rising inflation expectations. Meanwhile, businesses have shown remarkable resilience amid numerous changes, and the job market remains stable despite sluggish growth. With economic prospects highly uncertain, the new Chair, Kevin Warsh, has taken over with an open mind, raising many questions, and a vigorous discussion is anticipated at the next FOMC meeting.

Hammack's remarks further strengthen market expectations for a shift in Fed policy. Since renewed conflict in the Middle East has increased inflationary pressures, a growing number of Fed officials have publicly called for signals of openness to rate hikes. The Fed's next policy meeting is scheduled for June 16-17, local time, and will be chaired by Warsh.

Inflation Risks Dominate Policy Focus

Hammack pointed out that current price pressures are "relatively broad," not limited to specific sectors but spanning both goods and non-housing services. She also noted that the Fed's benchmark interest rate "may not be restrictive"—in other words, the current rate level might be insufficient to effectively curb inflation.

Regarding employment, Hammack views the situation as relatively optimistic. With the U.S. unemployment rate at 4.3% in April, she stated this is "broadly consistent" with her definition of full employment, indicating a labor market where supply and demand are essentially balanced.

Precisely because the labor market remains resilient, Hammack has clearly shifted her policy focus toward inflation. She stated: "Based on the available data, my concern about the risk of persistently high inflation is far greater than my concern about risks to full employment, and I am also concerned that monetary policy may not be restrictive enough to bring inflation back to 2%."

This stance aligns with her previous policy positions. At the Fed's April policy meeting, Hammack was one of three officials who voted against the post-meeting statement, opposing language that suggested the Fed would eventually resume rate cuts.