Federal Reserve Bank of Cleveland President Beth Hammack said Monday that interest rates may need to rise further to bring inflation down and prevent it from taking hold in the public’s expectations. She urged policymakers to make smaller adjustments relatively quickly rather than delay and risk a larger correction. The warning comes after the Fed raised rates last month for the first time in three years.
Hammack backs a restrictive policy stance
Speaking in prepared remarks at the National Association of Business Economics’ annual gathering, Hammack said monetary policy should remain restrictive to support a timely return to the Fed’s 2% inflation goal. Her comments point to the possibility of another increase, though she did not name a date or specify how large a move might be.
Hammack, a voting member of the Fed’s policymaking committee, argued for acting in relatively small steps when circumstances allow. The logic is to avoid waiting until inflation pressures require a more disruptive change in borrowing costs. Her remarks signal concern about the risk of easing policy too soon while price growth remains above target.
Inflation remains above the Fed’s goal
The personal consumption expenditures price index rose 3.4% year over year in August, according to the source material. The core PCE measure, which excludes food and energy prices, increased 3% over the same period. The Fed favors core PCE as a gauge of underlying inflation, but both readings were above the central bank’s 2% objective.
Hammack said inflationary pressure was broad and that it could take some time for annual price growth to return to 2%. That breadth matters because price increases spread across the economy can be harder to reverse than a rise concentrated in a narrow set of costs. For households and businesses, persistent inflation can complicate spending, planning and investment decisions.
Expectations are a central concern
Hammack said long-run inflation expectations had remained well anchored even though inflation had been above target for more than five years. She cautioned against treating that stability as guaranteed. Her concern is that repeated months of elevated inflation could shape how consumers and businesses anticipate future prices.
If those expectations become entrenched, workers may seek pay increases and businesses may set prices on the assumption that costs will keep rising. The source does not quantify the likelihood of that shift, but Hammack’s warning frames it as a risk policymakers should address before it becomes harder to contain. Maintaining confidence in the 2% goal is therefore part of the case for keeping policy restrictive.
Markets weigh the timing of another increase
Traders assigned more than a 78% probability to the Fed holding rates steady at its policy meeting later this month, using CME’s FedWatch tool. For the Fed’s final meeting of the year in December, they priced in a nearly 88% chance of a rate increase. Those market expectations suggest investors saw a near-term pause as more likely than an immediate move.
The September meeting minutes had already indicated that Fed officials could vote to raise rates again, without setting a clear timetable. Hammack’s remarks add to that uncertainty: they reinforce the possibility of further tightening but do not amount to a decision by the committee. The next move will depend on how policymakers assess inflation and the risks of leaving it above target.
Why the pace of action matters
Hammack’s preference for quick, incremental adjustments reflects a trade-off facing the Fed: raise rates enough to restrain inflation, but avoid waiting so long that a larger correction becomes necessary. The previous increase, made last month after a three-year gap, shows that the committee has resumed tightening, while her comments leave open whether another step will follow.
For borrowers, businesses and investors, the timing matters because interest-rate decisions influence the cost of credit and financial conditions. The source material gives no forecast for the size of any future increase. It does, however, make clear that Hammack sees persistent inflation—and the possibility that it alters expectations—as a reason not to assume the rate cycle is over.
Takeaway: Hammack says the Fed may need further, timely rate increases to return inflation to 2% and keep expectations anchored.
