FED: Cleveland's Hammack: Don't See Case For September Cut With Current Data

Cleveland Fed President Hammack (non-2025 FOMC voter but votes in 2026; hawk) echoes earlier commentary today from the sidelines of Jackson Hole from KC's Schmid  (a fellow hawk) in casting doubt on the necessity of a September rate cut. Going into Jackson Hole, we thought she was one of 10 (of 18) FOMC members that sounded open-minded enough in previous commentary to be persuadable on a September cut - but now the balance on the Committee clearly tips to 4 in favor/9 undecided/5 opposed. 

• Hammack says: "I think that there's a lot of data we're going to get between now and September. And I walk into every meeting with an open mind about what the right thing to do is. But with the data I have right now, and with the information I have, if the meeting was tomorrow, I would not see a case for reducing interest rates."
• In short, Hammack sees inflation risks exceeding those of missing on the employment side of the mandate: "my biggest concern is that inflation has been too high for the past four years, and right now it's been trending in the wrong direction and so I think it's really important that we stay modestly restrictive to make sure that we can bring inflation back under control... When I take the balance of things, there's a lot to be focused on the labor side, but the inflation side is is right now giving us a place where we're not at our target. We're at our target on the employment side. We're worried that maybe possibly that could break down, but we know we're missing on the inflation side, and to me, we need to stay laser focused on that to make sure we can bring inflation down."
• On neutral rates: "I don't think we're very far. I don't disclose my dot, but I think we're right around."
• Asked how she would regards another weak jobs report (with negative revisions), Hammack repeats arguments heard from others on the FOMC that overall payrolls growth may not be the best indicator of a weakening labor market, given a reduction in immigration (ie labor supply): "with the changes that have happened in immigration policy, it's not clear that that headline growth number is going to be as informative as things like the unemployment rate, the vacancies to unemployed ratio, other things that we're looking at on the employment side of the mandate, and that's because we've seen a massive shift ... so yes labor demand may be coming down but labor supply has come down pretty dramatically as well. And so our goal of maintaining employment around maximum needs to look at both sides of that, and it could be that even though we're seeing much slower headline job growth numbers, it could be that the labor market is still in balance and so we'll need to look at that closely."
• She says that the inflationary impact of tariffs is yet to really bite. Re PPI, "wholesale prices were going up more significantly, but not necessarily being passed on to consumers. That tracks with what I'm hearing when I'm out traveling in the district and I'm hearing from manufacturers that they're trying to buffer these price pressures as much as they can, but that's not going to last forever, and so some of these price pressures that are coming into the PPI and coming into the wholesale space will eventually make their way into the consumer space".
• That means it could be several months before the Fed can get a read on the inflationary impact of tariffs: "It's just now I think that we're starting to see some of those impacts play through into the economy. It usually takes three to four months for to start seeing the early impacts of tariffs, and so we're just at that point right now, just past that three to four month mark. I do expect from the conversations I've had that we're not going to see the full impact of tariff pass through until sometime next year...it could be that we're still continuing to see some of these impacts in Q1 and Q2 in terms of whether tariffs are going to be a one time price level impact or more persistently inflationary."