By Megan Leonhardt
The outlook on inflation is not encouraging, a Federal Reserve official said Tuesday, and that could force the central bank to take action soon.
In prepared remarks to the City Club of Cleveland, Beth Hammack president of the Federal Reserve Bank of Cleveland, says it is "reasonable" to keep rates steady right now given the uncertainties around the economic outlook. But she's worried about the trajectory of inflation, which has been above the Fed's 2% target for more than five years.
While the conflict in the Middle East has driven up fuel costs that have led to jumps in headline inflation, Hammack says she sees worrisome evidence of more "relatively broad-based price pressures" across goods and services. In fact, Hammack noted that inflation in services excluding housing has been "stuck" at elevated levels and shown little improvement in the last two years.
Hammack, a voting member of the Federal Open Market Committee this year, says the economy has proved resilient so far this year and employment conditions are holding steady. And she acknowledged that there's still some uncertainty about where inflation will ultimately settle. The higher inflation from the oil shock could be short-lived or consumers could pull back on spending, leading to a downturn in the labor market -- an outcome that could warrant interest-rate cuts.
But Hammack sees this scenario as less likely. Instead, she points out that other outcomes are also plausible, including a growing risk that inflation could remain sticky if energy costs do not come down quickly, causing businesses to raise prices. And Hammack notes that is not the only upside risk to inflation.
"Based on the data, I'm more concerned about the growing risks of persistently elevated inflation than the risks to full employment and that monetary policy may not be sufficiently restrictive to bring inflation down to 2%," Hammack says.
In fact, if recent trends continue, Hammack believes it may soon be appropriate to act -- and that may require the Fed to raise rates.
She believes that the Fed needs to work to prevent the public from falling into an "inflationary mindset" in order to bring inflation back to 2%. Hammack says she's concerned that increases in consumer inflation expectations could threaten that.
"The longer inflation remains above our goal, the greater the risk that it feeds into expectations and becomes embedded in wages, contracts, and pricing behavior," Hammack says. And the historical record is clear -- when that happens, restoring expectations is possible, but it's costly. When then-Fed Chair Paul Volcker had to sharply raise rates in the 1980s to get inflation under control, it triggered a severe recession.
"If we wait for definitive evidence that high inflation has become embedded in the economy, it may require larger policy adjustments, at greater cost," Hammack adds.
Write to Megan Leonhardt at megan.leonhardt@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 02, 2026 08:58 ET (12:58 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments