Fed’s Hammack says restrictive policy needed to combat inflation

Investing.com -- Federal Reserve Bank of Cleveland President Beth Hammack stated Thursday that interest rates should remain restrictive to combat persistent inflation concerns.

Speaking at the Pittsburgh Economic Club, Hammack described the current environment as "a difficult time for monetary policy" given the challenges to the Fed’s dual mandate of price stability and maximum employment.

"When I look at both of those things, on balance, I think we need to remain somewhat restrictive to continue putting pressure to bring inflation down towards our target," Hammack said.

She noted that the U.S. economy has shown remarkable resilience, but feedback from contacts indicates inflation remains too high and is moving in the wrong direction. Hammack expressed particular concern about service inflation, while acknowledging that some price pressures may be tariff-driven.

The Cleveland Fed president expects tariffs to drive inflation higher into early 2026. She described the current unemployment rate as being around its maximum level, suggesting the job market appears balanced but presents reasons for concern amid signs of softening.

During the ongoing government shutdown, Hammack emphasized the importance of anecdotal data in informing policy decisions. She also stressed that Fed independence is "critically important" to delivering on the central bank’s employment and inflation mandates, asserting that "politics plays no role in setting monetary policy."

When asked about artificial intelligence, Hammack said it was "too soon to say what will happen" and that "time will tell if valuations for A.I. firms are right."