Federal Reserve's Hummer: If inflation remains high, the Fed may take action soon.

The hawkish voices within the Federal Reserve continue to intensify. Cleveland Fed President Beth Hammack said on Tuesday, Although keeping interest rates unchanged remains reasonable at present, if recent inflation data continue to remain elevated, policy actions may soon be needed—including considering further rate hikes to address the ongoing high inflation risks.

According to Bloomberg, Hammack pointed out at an event in Cleveland that her concerns about inflation far outweigh concerns about the labor market. The Fed's preferred inflation gauge—the Personal Consumption Expenditures (PCE) price index—rose 3.8% year-on-year in April, marking the largest increase since 2023 and remaining above the 2% policy target for more than five consecutive years. She warned that if policymakers wait for definitive evidence that inflation is deeply entrenched, the required policy adjustments and costs will be much greater at that point.

However, she also noted that the Fed cannot focus solely on a single inflation indicator and has not yet seen signs of rising inflation expectations. Meanwhile, companies have shown strong resilience amid numerous changes, and the job market remains stable despite sluggish growth. Against a backdrop of extreme uncertainty regarding the economic outlook, newly appointed chairman Kevin Warsh has assumed his post with an open mind, raising many questions. The next FOMC meeting is expected to see heated discussions.

Hammack's remarks further reinforced market expectations for a Fed policy shift. Since renewed Middle East tensions pushed up inflation pressures, more and more Fed officials have publicly called for signaling an openness to rate hikes. The next Fed policy meeting is scheduled for June 16–17 local time, to be chaired by Warsh.

Inflation Risks Dominate Policy Focus

Hammack pointed out that current price pressures are "relatively broad," not limited to individual sectors but spanning both goods and non-housing services. She also stated that the Fed's benchmark interest rate "may not be restrictive"—in other words, the current rate level may not be sufficient to effectively curb inflation.

Regarding employment, Hammack believes the situation is relatively optimistic. In April, the U.S. unemployment rate was 4.3%, which she said "roughly meets" her definition of full employment, indicating that the labor market has achieved a basic supply-demand balance.

Precisely because the labor market remains resilient, Hammack has clearly shifted her policy focus to inflation. She stated:“Based on current data, my concerns about persistently high inflation risks far outweigh concerns about full employment risks. I also worry that monetary policy may not be restrictive enough to bring inflation back to 2%.”

This stance is consistent with her previous policy positions. During the Fed’s April policy meeting, Hammack was one of three officials who cast dissenting votes, opposing language in the post-meeting statement that suggested the Fed would eventually resume rate cuts.

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