MNI: Fed’s Hammack Sees Strong Case For Holding Rates

Elevated risks of inflation and unemployment make a holding pattern the best near-term course for monetary policy, Cleveland Federal Reserve Bank President Beth Hammack said Friday.

“Given the economy’s starting point, with inflation still elevated and with both sides of our mandate expected to be under pressure, there is a strong case to hold monetary policy steady at its current modestly restrictive setting,” Hammack told a Hoover Institution conference on monetary policy.

“I am usually inclined to take action; but in this case, taking no action may be the best choice to balance the risks coming from further elevated inflation and a slowing labor market. If this scenario comes to pass, then it will be important to ensure inflation expectations remain well anchored while assessing the likely magnitude and persistence of the misses to each side of our dual mandate goals.” (See MNI POLICY: Fed Forced Into Hawkish Stance Despite Growth Risk)

Hammack said the high uncertainty environment is driving her to seek clues about the economy’s path in some of the softer data.

“By many measures, the backward-looking data have been encouraging, but heightened uncertainty surrounding government policies is clouding the outlook and raising the risks of higher inflation, slower growth, and softening in the labor market,” she said.

“Beyond the usual monthly and quarterly indicators on growth, inflation, and the labor market, I am looking at higher-frequency data on evolving conditions. In these times, I find that anecdotal reports from business, community, and financial market contacts are especially helpful because they provide timely information and additional context to complement the hard data.”