Fed's Hammack signals support for gradual interest rate increases

Cleveland Federal Reserve President Beth Hammack said on Thursday that persistently high and broadening inflation does not currently require faster interest rate increases. Hammack spoke at Ohio State University. Hammack said monetary policy needs to become restrictive to return inflation to the 2% target. Hammack warned that failing to take that action could allow an inflationary mindset to develop.

Hammack argued that businesses and households can more easily manage smaller interest rate increases delivered more frequently. Hammack said a gradual approach causes less disruption across the economy than sharp, aggressive increases. Hammack said recent data show inflation pressures worsening. However, Hammack said a more aggressive pace does not appear appropriate now. Hammack said faster increases might warrant consideration if the Fed falls behind inflation developments, but Hammack does not believe the Fed is currently behind.

Hammack holds a vote on the Fed's monetary policy committee and was an early, consistent advocate of rate increases to reduce price pressures. The Fed increased the benchmark rate by a quarter of a percentage point in September, bringing the range to 3.75% to 4.00%. The Fed kept rates unchanged in July and October, and Hammack dissented at both meetings.

The Fed is widely expected to increase rates by a quarter of a percentage point at the December 8-9 meeting. Fed Governor Christopher Waller, an influential monetary policy voice, appeared earlier this week to favor a half-percentage-point increase next month because October consumer inflation exceeded expectations. However, other Fed officials have indicated support for gradual increases for reasons matching Hammack's.

Hammack cautioned on Thursday that Hammack's rate expectations are conditional assessments of the economy's possible direction, not promises, commitments or forward guidance. Hammack said every policy meeting begins with an open mind and a willingness to hear other Fed officials' views.