Cleveland Federal Reserve President Beth Hammack said on Thursday that the central bank must do more to reach the 2% inflation target. Hammack described price pressures as unacceptably high. In prepared remarks for an event in Zurich, Hammack said monetary policy would need to become restrictive to restore 2% inflation promptly.
Hammack said smaller, more frequent adjustments would be preferable when possible because households, businesses and financial markets would face less disruption. Hammack said gradual increases would also lessen the danger of policy lagging behind the necessary stance and inflation expectations becoming entrenched. Hammack did not indicate a preferred date for the next rate increase.
The Fed kept the benchmark interest rate at 3.75%-4.00% last week despite policymakers acknowledging excessive inflation. The Fed increased rates in September. Financial markets widely anticipate another increase in December. Hammack and Fed Governor Lisa Cook dissented last week because both favored an increase. Hammack also dissented in late July when the Fed held rates steady.
Hammack has argued that monetary policy and wider financial conditions do not restrain the economy enough to bring inflation down. Those conditions mean the Fed needs to raise short-term borrowing costs further. Hammack said central bank independence is essential for stable inflation. Hammack said the Fed has built credibility by basing decisions on evidence and economic data instead of political pressure.
Hammack said strong US institutions and the US legal system explain why the dollar retains a substantial lead as the world's reserve currency. Hammack said preserving the qualities supporting the dollar's strength is necessary to sustain that status. Hammack included central bank independence among those qualities because independence enables the Fed to fulfill the Fed's mission. Hammack said the dollar's proportion of global reserves may have reached a peak, but major near-term changes in the dollar's international role are difficult to envisage.
Hammack said cryptocurrencies do not appear capable of displacing the dollar. Hammack said cryptocurrency price fluctuations make cryptocurrencies a less reliable store of value than the dollar. Hammack said unresolved cryptocurrency problems leave Hammack skeptical that cryptocurrencies threaten the dollar's status.