Hammack Calls for Immediate Fed Rate Action, Warns of Entrenched Inflation

Federal Reserve Bank of Cleveland President Beth Hammack on Thursday reiterated her call for an immediate interest-rate increase, warning that inflation has run above the central bank's goal for too long and risks becoming embedded in public expectations.

"I believe now is the time to act," Hammack said in a live CNBC interview from the Fed's annual symposium in Jackson Hole, Wyoming. "I think it's appropriate for us to put some restraint there to help bring inflation back down to target."

Hammack was one of three Federal Open Market Committee members who dissented at the July policy meeting, preferring a quarter-percentage-point rate hike. The majority voted to hold the benchmark rate steady in a range of 3.5%-3.75% for the fifth consecutive meeting.

The Cleveland Fed chief said she sees no evidence that current interest rates are restraining economic activity. "We're seeing trillion dollar IPOs happen in the marketplace, we're seeing record amounts of debt issuance," she said, according to Bloomberg. "To me, that doesn't feel like we have restriction in the economy."

The Fed's preferred inflation gauge, the personal consumption expenditures price index, rose 3.7% in July from a year earlier, the Bureau of Economic Analysis reported Wednesday. A core measure excluding food and energy advanced at a 3.3% annual pace. Inflation has exceeded the Fed's 2% target for more than five years, Hammack noted.

"The longer inflation stays above our objective, the harder it will be for us to bring it back down, and the more pain that individuals and businesses are going to be experiencing," she said, as reported by CNBC.

Hammack warned that the persistence of above-target price increases could eventually alter consumer behavior. "To me the real problem with us missing on our inflation objective for so long is the risk that an inflationary mindset starts to set in with the public," she said in the Bloomberg account of the interview. She added that she has not seen that mindset take hold yet but has had conversations that raise concern.

CNBC reported that much of this year's inflation increase has been traced to the impact from the Iran war, tariffs and demand related to artificial intelligence. While policymakers typically look through supply shocks regarded as temporary, some Fed officials worry the effects could become embedded.

Hammack described meeting with workers in Erie, Pennsylvania, who "were all saying that they're feeling a sense of despair. They're working every day, coming in, they've got good jobs, and yet they still feel like they can't make ends meet. They can't go and afford an ice cream cone on the weekend with their kids," according to CNBC.

Despite Hammack's hawkish stance, market pricing indicates the Fed will stay on hold at both its September and October meetings and will wait until December for the next rate increase, CNBC reported. The Cleveland Fed chief is a voting member of the FOMC this year.

Hammack's remarks align with her recent public statements. She dissented at the July meeting alongside two other officials who also favored a quarter-point increase. The majority has held rates steady since March, betting that patience will allow inflation to ease without further tightening.

"I don't want to prejudge anything. But I believe now is the time to act," Hammack said, according to CNBC. She added that interest rates are not slowing the economy enough for price pressures to cool on their own, a view she has expressed consistently in recent weeks.