Cooler inflation readings for July haven't changed the rate policy calculus for Beth Hammack, president of the Federal Reserve Bank of Cleveland. She said Thursday that she still believes the central bank needs to move swiftly to bring down price growth.
"I think that we need to act now, because I think we need to bring inflation back down to that 2% objective, faster than what a longer term glide path would say with interest rates at this level," Hammack said while speaking to the Dayton Area Chamber of Commerce in Ohio.
While the June and July readings of the consumer price index reports have been cooler and show that the economy is making some progress on returning to lower inflation, it's not enough, Hammack said, especially because businesses are still reporting that they are experiencing higher input costs. That could result in consumer pricing pressures remaining persistent.
"We've gotten two recent [consumer price index] reports on the inflation side that are definitely better than the earlier five months that we've had this year. It's welcome news. I love to see that those numbers are coming in lower," Hammack said. "But I don't have confidence that we're going to continue to see that, or that we're going to see them low enough that it's going to bring us back down to that 2% number."
At the July meeting of the Federal Open Market Committee, Hammack, along with Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari, dissented on the vote to keep the current target range for the federal-funds rate at 3.50% to 3.75%. They favored a quarter percentage point interest-rate hike.
All three have called out the current high level of inflation -- and its persistence. July's consumer price index, though cooler than previous months, still measured 3.4% year over year.
Inflation has been above the Fed's 2% target for over five years now, and the dissenting policymakers have said they're concerned that the elevated levels could become entrenched.
Hammack believes the Fed has a responsibility to deliver on that 2% objective sooner rather than later, questioning whether it was truly OK if it takes the U.S. another three or four years to get inflation sustainably back to 2%.
"The longer that inflation stays above our goal, the harder it is to bring it back down, and the more pain that's experienced by individuals and businesses across the world over that period of time," Hammack said.
When looking at policy broadly, Hammack said she does not believe it is restrictive.
"I hear that businesses are excited to raise funds, are excited to borrow, so they continue to invest -- they see the growth opportunities, which is great, I want them to continue to see growth opportunities. But if we have too much in that growth, too much in that energy, it could mean that that's putting additional pressure on price increases, and that puts that more of that inflationary pressure on," Hammack said.
She also doesn't see the labor market in imminent danger, saying that conditions have been "reasonably stable." She added that monthly payroll growth has been "noisy" of late, so she tends to rely on the unemployment rate, which she sees as the "single best indicator of the health of the labor market." And that has been stable, declining to 4.1% in July from June's 4.2% level.
"So you've got a labor market that's broadly stable, right around my estimate of maximum employment, and you've got inflation that has been missing our target for more than five years," Hammack said.
Last year, Hammack said Fed officials were more worried that there was some weakness in the labor market, and therefore took a more cautious approach to how they positioned interest rates.
"But now I see the resilience. I see this continued investment, and I think it's the time to act to make sure that we're getting inflation, and we're delivering on that side of our mandate."
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