Hammack, Goolsbee signal need for restrictive rate policy as inflation persists

Two US Federal Reserve officials signalled the need for a restrictive monetary policy stance as inflation remains stubbornly above the central bank's 2% target. Cleveland Fed President Beth Hammack and Chicago Fed President Austan Goolsbee have raised concerns over persistent price pressures, while the International Monetary Fund (IMF) has backed the Fed's focus on bringing inflation under control.

Hammack noted that higher interest rates are needed to combat persistent inflation, Bloomberg News reported.

“My expectations are that we need to move to a restrictive stance of policy to help bring inflation back down to that 2% objective, which is critically important,” Hammack said Thursday during an event in Columbus, Ohio. “If we don’t, I worry that an inflationary mindset could start taking hold.”


Hammack said the central bank is well equipped to address demand pressures from the expansion of data centres. “When I look at that balance, what I’m seeing is inflation that’s been sticky. It’s been more persistent than I would like it to be,” she said.

Underlying inflation, excluding food and energy prices, rose more than expected in October. Hammack said the report showed that progress on inflation had “really stalled.”

“The most recent data that I’ve seen show inflation is moving in the wrong direction. We’re moving away from that 2% goal, rather than back down towards it,” she said.

Hammack was one of two officials who dissented from the Fed’s decision last month to hold interest rates at a range of 3.75% to 4%. She instead favoured a quarter-point increase.

The Cleveland Fed chief has advocated more frequent but smaller adjustments to the central bank’s benchmark rate. “My view is that if we go steadily in smaller increments, more frequent, smaller rises, it’s easier for businesses and households to manage around that,” said Hammack. “It’s less disruptive to the overall economy than moving in sharper, more aggressive movements.”

Fed policymakers differ over the appropriate pace of rate increases. Some officials favour gradual adjustments, while Governor Christopher Waller warned this week that the central bank may need to consider a half-point increase in December.

Goolsbee raises inflation concerns

Goolsbee also said the latest inflation data are not moving in the right direction, according to a Reuters report.

Referring to the October Consumer Price Index report, Goolsbee told Yahoo Finance that “we're way above the target, and this wasn't a one-off month."

With inflation spreading beyond areas affected by factors such as tariffs, Goolsbee warned that price pressures could become more difficult to control.

“It's worth being sober-minded at a moment like this…We're inching our way into a territory that's...historically a tough spot for any central bank to try to get rid of that inflation.”

IMF supports restrictive Fed policy

The IMF said the Fed needs to maintain a restrictive monetary-policy stance to return inflation to its 2% target and backed the central bank’s focus on price stability, as per the Reuters report.

IMF spokesperson Julie Kozack told a regular news briefing that US inflation was not being driven by wage growth but by high energy prices and the continuing AI investment boom. She said it was too early to determine whether recent developments and stock-price volatility in the AI sector would ease inflationary pressures.

"Our view is that a restrictive policy stance will be necessary going forward to support disinflation and bring inflation gradually back to target. We fully support the Fed's focus on price stability and its readiness to act as needed to bring inflation down," Kozack added.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)