Fed member Beth M. Hammack said monetary policy is already below neutral levels and could provide further stimulus to the economy.
Hammack noted that November’s inflation numbers may be an underestimate of reality due to data collection problems caused by the government shutdown in October and the first half of November.
The US Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) rose 2.7% in November compared to the same month last year. However, Hammack said that given measurement difficulties, the actual rate of increase in inflation could be closer to the 2.9% to 3.0% range where market expectations are centered. It argued that this shows that the decline in inflation is more limited than expected.
One of the main reasons Hammack is cautious about cutting rates is that he believes the “neutral rate” could be higher than the general consensus. Hammack points out that while the neutral interest rate cannot be directly observed, it can be inferred based on the current state of the economy and growth dynamics. He said the U.S. economy has the momentum to maintain high growth next year.
Meanwhile, New York Fed President Peter Hammack insisted there was no need for further action in the coming months after cutting interest rates three times in a row at a recent meeting. He said he was more concerned about continued high inflation than any potential weakening of the labor market, which is why he opposed the recent rate cuts.
Hammack will not have voting rights on the committee that sets interest rates this year, but will have voting rights next year. “My base case is that we can keep interest rates at their current levels through at least the spring,” he said in an interview on the Wall Street Journal’s “Take on the Week” podcast. “We need to see stronger evidence that inflation is clearly slowing toward its goal or that the weakness in the labor market is more pronounced.”
*This is not investment advice.
