In a recent statement, Beth M. Hammack, a member of the Federal Reserve, provided insights into her perspective on interest rates as she prepares to assume a voting role next year. Hammack emphasized that current monetary policy might already be below the neutral level, suggesting that it could be stimulating the economy more than anticipated.
Hammack expressed concerns regarding the November inflation data, which reported a year-on-year increase of 2.7% according to the U.S. Bureau of Labor Statistics (BLS). She argued that this figure might not accurately reflect reality due to data collection issues stemming from the recent government shutdown. Hammack suggested that the actual inflation rate could be closer to 2.9% to 3.0%, indicating that the decline in inflation may be less significant than previously expected.
Her cautious stance on potential interest rate cuts is rooted in her belief that the “neutral interest rate” could be higher than many analysts believe. Hammack noted that while this neutral rate is not directly observable, it can be inferred from the current economic conditions and growth trajectories. She also highlighted that the U.S. economy has the momentum to maintain strong growth in the upcoming year.
As the president of the Federal Reserve Bank of New York, Hammack has been vocal about her reservations regarding recent interest rate cuts. She indicated that following three consecutive cuts, there would be no immediate need for further reductions. Her primary concern lies with the possibility of persistently high inflation rather than a weakening labor market, which has influenced her opposition to recent policy adjustments.
Looking ahead, Hammack, who will gain voting rights on the committee making interest rate decisions next year, shared her outlook in an interview on the Wall Street Journal”s “Take On the Week” podcast. She stated, “My base scenario is that we can keep interest rates at current levels at least until spring. We need to see stronger evidence that inflation is clearly slowing toward the target or that there is more pronounced weakness in the labor market.” These insights could have significant implications for economic policy and the broader market landscape as we move into the new year.
