By Michael S. Derby
NEW YORK (Reuters) – Federal Reserve Bank of Cleveland President Beth Hammack said on Tuesday the need to get inflation back to target will keep monetary policy on pause for now.
“Given current economic conditions, it will likely be appropriate to hold the funds rate steady for some time,” Hammack said in the text of a speech prepared for delivery before an event in Lexington, Kentucky.
“A patient approach will allow us to assess the health of the labor market, whether inflation is returning to 2% on a sustained basis, and how the economy is performing in the current rate environment,” she said, while noting the overall stance of monetary policy is “well positioned” to respond to changes in the economy.
Hammack spoke just ahead of two days of testimony for Fed Chair Jerome Powell before Congress. After lowering rates by a full percentage point to between 4.25% and 4.50% last year, the Fed held monetary policy steady at its last meeting amid considerable uncertainty about the future of the economy with the return of Donald Trump as president.
Trump campaigned on hitting U.S. trading partners with heavy tariffs and to deport undocumented workers and since his inauguration, he has moved unevenly toward those goals. Economists generally believe these policies will push up inflation and complicate the Fed’s job, and officials have been hesitant to provide much guidance about the prospect of future rate cuts.
Hammack said getting inflation back to 2% is “paramount” and the Fed’s main challenge is to lower price pressures without damaging an otherwise strong job market. She also noted current evidence suggests monetary policy is “modestly restrictive.”
Hammack cautioned inflation remains a challenge. “Given the recent history with elevated inflation, the risks to the inflation outlook appear skewed to the upside, and this could delay a return to 2% and further risk embedding elevated inflation into the economy,” she said. Hammack, who joined the Fed last year, dissented against the Fed’s December rate cut.
Hammack said she’d be taking her time to take stock of changes in government policy.
“There is uncertainty over what potential government policies may be implemented in the near term, and there is considerable uncertainty over their attendant economic effects,” she said. “Taking the case of tariffs as one example, it is appropriate for policy to be patient in assessing their ultimate effects” as there are many moving parts involved with that type of tax.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
