MNI BRIEF: Fed's Hammack - Could Hold 'For Quite Some Time'

The Federal Reserve could be in a position to keep interest rates on hold for a while now that borrowing costs are in the range of neutral and risks to employment and inflation appear to be abating, Cleveland Fed President Beth Hammack said Tuesday. 

"Based on my forecast, we could be on hold for quite some time," she said in prepared remarks. "If we see progress on both sides of our mandate, that tells me that our policy rate is already at the right setting and that we should hold it there. Rather than trying to fine tune the funds rate, I’d prefer to err on the side of patience as we assess the impact of recent rate reductions and monitor how the economy performs."

Hammack said she is heartened by strong recent readings on economic growth and signs of stabilization in the labor market. She also sees inflation easing somewhat this year. 

"At this point, I believe monetary policy is in a good place to stay on hold as we assess the incoming data and weigh if, and how, policy may need to adjust further," she said. 

"Looking ahead, I’m cautiously optimistic. Growth this year should get a boost from easier financial conditions, recent interest rate reductions, and fiscal support, among other factors. Businesses tell us they are expecting some firming in activity, and bankers in our District say projects that were on hold last year are starting to move forward," added Hammack. 

"Brighter growth prospects should translate into stronger demand in the labor market, helping to reduce the unemployment rate over the course of this year. Inflationary pressures should start to ease as tariff rates stabilize."

The Cleveland Fed chief, a former Goldman Sachs executive, also cautioned against excessive deregulation of the banking system. 

"Tailoring regulation and supervision is one way we can ensure the banking system endures as a lasting source of economic strength. At the same time, we should be mindful that loosening the rules too much could result in less resilient banks that don’t serve the country well in times of stress," she said.