Hammack Releases Hawkish Signals: Inflation Will Not Subside on Its Own, Multiple Rate Hikes May Be Needed

Cleveland Fed President Beth Hammack stated that multiple rate hikes may be needed to bring inflation down to the Federal Reserve's 2% target, though she prefers not to prejudge exactly how many hikes will ultimately be required.

In an interview on Monday, Hammack said:

“Overall, I think a single 25-basis-point rate hike may not have much impact on the economy. Therefore, several rate hikes may be necessary. But I don't want to prejudge what that number will be.”

Hammack was one of three dissenting officials who favored raising rates in last month's Federal Reserve decision to hold interest rates steady. In her post-meeting statement, the Cleveland Fed President indicated that the longer high inflation persists, the harder it becomes to bring it back down.

In Monday's interview, Hammack also stated that current interest rate levels do not pose a “meaningful constraint” on the economy. She does not believe inflation will subside to the target level on its own and sees no signs of trouble in the labor market.

Two weeks ago, the Federal Reserve announced it would keep the federal funds rate target range unchanged at 3.5% to 3.75%. At that time, three members, including Hammack, voted against the decision, favoring a 25-basis-point rate hike at the meeting.

Last week, Federal Reserve Vice Chair John Williams stated that current interest rates are in a “good position,” expecting inflation to cool in the second half of this year, and that the Fed need not rush to adjust rates.

According to CME FedWatch data, the market-implied probability of a 25 bp rate hike in September is 51.7%; for October, the probability of a cumulative 50 bp hike is 14.9%, a cumulative 25 bp hike is 50.7%, and no change in rates is 34.4%.