Hammack releases hawkish signals: Inflation will not fall on its own, multiple rate hikes may be needed

President of the Cleveland Federal Reserve, Beth Hammack, stated that in order to bring inflation down to the Federal Reserve’s 2% target level, multiple interest rate hikes may be needed, but she does not wish to prejudge how many rate hikes will ultimately be required.

In an interview on Monday, Hammack said:

“Overall, I think that a single 25 basis point rate hike may not have a significant impact on the economy. Therefore, several hikes may be needed. But I don't want to estimate exactly how many in advance.”

Hammack was one of the three dissenting officials who supported a rate hike in last month's Federal Reserve decision to keep rates unchanged. Following the meeting, the Cleveland Fed president said that the longer high inflation persists, the harder it will be to bring it back down.

In Monday’s interview, Hammack also noted that the current level of interest rates does not present a “meaningful restriction” on the economy, she also does not believe that inflation will come down to target on its own, and she has not seen any issues in the labor market.

Two weeks ago, the Federal Reserve announced that it would keep the federal funds rate target range unchanged at 3.5% to 3.75%. At the time, Hammack and two other committee members voted against the decision, favoring a 25 basis point rate hike at the meeting.

Last week, Federal Reserve “number three” John Williams stated that the current rate level is at a “good position”, expects inflation to cool in the second half of this year, and that the Fed does not need to rush to adjust rates.

CME FedWatch data shows that the market sees a 51.7% probability of a 25bp rate hike in September; a 14.9% probability for a total of 50bp hikes by October, a 50.7% probability for a cumulative 25 basis point increase, and a 34.4% probability of no change in rates.