Cleveland Fed's Beth Hammack backs smaller, more frequent rate hikes

Federal Reserve Bank of Cleveland President Beth Hammack said Monday that she favors making smaller, more frequent adjustments to interest rates rather than delaying action and potentially requiring a larger move later.

“When feasible, I generally think it’s preferable to make smaller adjustments, and to do so relatively quickly, rather than to wait and risk needing a larger course correction,” Hammack said in a speech at the National Association for Business Economics annual meeting in Cleveland.

Hammack, who votes on policy decisions this year, said she views inflation pressures as relatively broad-based rather than concentrated in any single component of the economy. A restrictive monetary policy stance is appropriate to ensure inflation returns to the Fed's 2% target in a timely fashion, she said.

Much of the speech centered on the value of transparency, with Hammack arguing that officials should articulate the logic behind their decisions — a so-called "reaction function" — while stopping short of offering "firm predictions" about where rates are headed. "I want to draw a sharp line here. A reaction function is not forward guidance," Hammack said, according to Bloomberg. "Treating the two as interchangeable can turn a well-meaning explanation of logic into the expectations of a promise."

Hammack also said that with each passing month, persistently elevated inflation raises the risk of an inflationary mindset becoming entrenched in the economy. She stopped short of backing a rate increase at the Fed’s Oct. 27-28 meeting, according to Bloomberg.

Hammack's preference for steady, incremental tightening reflects a position she has held for months. She argued in August that more than one rate increase would likely be needed to bring inflation back under control and that interest rates at the time were not placing meaningful restraint on the economy. She dissented at the Fed's July meeting, when the committee voted 9-3 to hold rates steady, preferring a quarter-point increase alongside Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan.

The Fed ultimately raised its benchmark rate by a quarter percentage point in September, a unanimous 12-0 decision that brought the federal funds rate to a target range of 3.75%–4%. The decision reflected a shared view among Fed officials that rising prices — fueled by the Iran war and surging demand connected to artificial intelligence buildout — required a policy response, according to Bloomberg. Sixteen of 18 meeting participants at that time projected at least one additional rate increase.