Central Bank Strategy: Cleveland Fed President Advocates for Interest Rate Pause

The President of the Federal Reserve Bank of Cleveland, Beth Hammack, recently expressed her dissenting opinion at a central bank meeting. She emphasized that interest rates should remain stable until there is more progress in combating inflation. Hammack argues that interest rates are approaching a neutral level, where they would neither stimulate nor hinder the economy. She suggests that rates should remain high enough to slightly dampen economic activity for some time. Hammack, who has been a member of the Fed since August and has voted three times in total, sees the economy in a good position currently. Nevertheless, it is necessary to take further measures to reduce price pressures. At the December meeting, the Fed cut rates for the third consecutive time. Despite the renewed rate cut, the decision-makers signaled that next year a significantly slower pace of reduced inflation is expected to achieve the 2% target. Hammack warned that persistently high inflation above 2% would risk unanchoring inflation expectations. This would make it more challenging to bring inflation back to the target level. Fed Chairman Jerome Powell stated in a press conference that further rate cuts would only occur with cooler inflation. Before her role at the Fed, Hammack had three decades of experience at Goldman Sachs, encompassing finance, capital markets, and risk management. Her dissenting vote was the first by a regional bank president since 2022, following a similar disagreement by Governor Michelle Bowman in September.