Fed's Hammack warns inflation expectations deterioration could require Fed response
TLT•Cleveland Fed President Beth Hammack said the Fed might need to raise interest rates more aggressively if public inflation expectations deteriorate notably. She described financial conditions as roughly neutral and said she did not feel they were restraining activity.
1. Conditional warning on inflation
Hammack said a more persistent inflation mindset could make it harder for monetary policy to work and might require the Fed to move more than otherwise. She gave no firm guidance on what current conditions mean for policy.
2. Rates and financial conditions
The Fed raised its target rate by a quarter percentage point last month, to a range of 3.75% to 4%. Inflation data released this week showed worse-than-expected price pressures, and some market watchers increased the odds of a rate hike at the October 27-28 meeting. Hammack said financial conditions seemed roughly neutral despite rising borrowing costs and ongoing investment in technology.
