Federal Reserve Bank of Cleveland President Statement

By Michael S. Derby

(Reuters) – Federal Reserve Bank of Cleveland President Beth Hammack stated on Wednesday that the high levels of uncertainty in the U.S. economy suggest the central bank should maintain its current interest rate policy while gathering more data to inform future decisions.

“Given the economy’s starting point, and with both sides of our mandate under pressure, there is a strong case to hold monetary policy steady to balance the risks of elevated inflation against a slowing labor market,” Hammack said in a prepared speech for a gathering in Columbus, Ohio.

“When clarity is hard to come by, waiting for additional data will help inform the path ahead,” she added.

Hammack, who does not vote on the monetary policy-setting Federal Open Market Committee this year, pointed out that recent changes in the U.S. trade regime, especially tariff increases, have increased uncertainty, complicating decisions around central bank monetary policy.

Currently, the federal funds target rate is between 4.25% and 4.5%. Although Fed officials project rate cuts for this year, and market participants expect easing, questions remain about how tariffs will affect prices and economic growth.

In her remarks, Hammack stated that current monetary policy is appropriate as inflation is still above the 2% target. While the economy started the year strong, recent mixed data and tightening financial conditions have contributed to uncertainty. This includes unusual declines in stock and bond prices as well as a drop in the dollar.

“Uncertainty surrounding the outlook is high,” Hammack said. “I see risks around both legs of our dual mandate that could lead to higher inflation or lower growth and employment outcomes in the near to medium term,” she added, describing these as challenging risks for monetary policy to manage.

Hammack emphasized the importance of taking the time necessary to formulate the correct policy response, advising that it is better to be deliberate than to act quickly and make mistakes in rate changes.

Similar to other Fed officials, Hammack acknowledged different potential scenarios: if growth falters and inflation eases, rapid rate cuts may be warranted, whereas if the labor market remains strong and inflation rises, more restrictive policies might be required.

Elevated inflation and weakening hiring rates present challenging tradeoffs for the Fed, Hammack noted, indicating the necessity of anchoring inflation expectations while monitoring economic performance concerning the Fed’s mandates.

(This story has been corrected to fix the location of the gathering where Hammack spoke to Columbus, Ohio, instead of Cleveland.)