Fed's Hammack Says It's 'Really Critical' To Act Now On Inflation — Warns Delaying Could Mean 'More Pain'

• Hammack added that the Fed’s monetary policy is not restrictive right now, saying that businesses are excited to borrow and raise funds to invest in growth opportunities.
• She said that the current labor market in the U.S. is “reasonably stable,” while adding that the unemployment numbers are currently in the zone which she considers to be one offering maximum employment.
• Hammack believes that after accounting for these shifts, the lower numbers are still in line with what she considers to be breakeven.

Federal Reserve Bank of Cleveland President Beth Hammack on Thursday said that the central bank needs to act now to bring inflation back down toward the long-term target of 2%.

During a Dayton Area Chamber of Commerce event, Hammack said that she does not see any tension in the Fed’s dual mandate of maximum employment and stable prices.

“I think it’s really critical that we act now to make sure that we can bring inflation back down to target. The longer that inflation stays above our goal, the harder it is to bring it back down, and the more pain that’s experienced by individuals and businesses,” she said.

Policy Is Not Too Restrictive, Says Hammack

Hammack added that the Fed’s monetary policy is not restrictive right now, saying that businesses are excited to borrow and raise funds to invest in growth opportunities.

“I want them to continue to see growth opportunities, but if we have too much in that growth, too much in that energy, it could be that it’s putting additional pressure on price increases, and that puts more pressure on inflationary trends,” she said.

Hammack Says Labor Market Is ‘Reasonably Stable’

Hammack said that the current labor market in the U.S. is “reasonably stable,” while adding that the unemployment numbers are currently in the zone which she considers to be one offering maximum employment.

“It may not be as dynamic as we are used to historically. We have lower job creation; the headline payrolls number has been average 20,000 jobs per month over the past three to 12 months,” she said, while adding that the lower additions are a result of recent policy shifts around immigration.

Hammack believes that after accounting for these shifts, the lower numbers are still in line with what she considers breakeven. She highlighted that the unemployment rate has hovered between 4.1% and 4.3% over the past 12 months, indicating maximum employment in the economy.

Hammack was one of the dissenters in the Federal Open Market Committee’s (FOMC) meeting last month, voting in favor of a 25 basis point rate hike while the central bank decided to keep rates unchanged.

In a statement explaining her dissent, Hammack said she is “not confident” inflation will return to the Fed's 2% target on its own and argued that acting sooner would reduce the risk of needing more aggressive tightening later.

According to the CME FedWatch tool, markets are pricing in a 65.6% probability that the Fed will leave interest rates unchanged in September. However, expectations shift in December, when the odds of a 25-basis-point rate hike rise to 45.2%, compared with 30.7% for rates remaining unchanged.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, gained 0.59%; the Invesco QQQ Trust ETF (QQQ) surged 1%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.17%. Retail sentiment on Stocktwits regarding the S&P 500 ETF was in the ‘neutral’ territory.

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