MNI: Fed’s Hammack Sees Strong Case To Hold Rates Steady

Policy uncertainty in Washington is raising risks to both sides of the Federal Reserve’s dual mandate, making it the best course of action to hold interest rates steady for now while policymakers wait for clarity, Cleveland Fed President Beth Hammack said Wednesday. 

“Given the economy’s starting point, and with both sides of our mandate expected to be under pressure, there is a strong case to hold monetary policy steady in order to balance the risks coming from further elevated inflation and a slowing labor market,” Hammack said in prepared remarks. “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 and slower growth.”

Hammack said business contacts in her district are increasingly pointing to subdued economic activity because of this uncertainty. “Many indicate that they have paused some spending in light of increased uncertainty surrounding government policies, including tariffs, immigration, federal spending, and employment,” she said.

“From what we’ve heard so far, uncertainty surrounding the outlook is high. I see risks around both legs of our dual mandate that could lead to higher inflation outcomes and to lower growth and employment outcomes in the near to medium term. This is a difficult set of risks for monetary policy to navigate,” she said. (See MNI INTERVIEW: Fed Needs More Hawkish Message - Emmons)

She has been monitoring financial market volatility in recent weeks, adding financial conditions have generally tightened as equity prices took a spill and credit spreads widened. “At the same time, the dollar has weakened against a basket of foreign currencies. This pattern is different from recent ‘risk-off’ episodes in which equity prices declined, credit spreads widened, the dollar appreciated, and US Treasury yields fell as domestic and international investors sought the safety of US government bonds,” said Hammack, formerly of Goldman Sachs.