Fed’s Hammack Says Central Bank Should Pause Rate Cuts

Beth Hammack, president and chief executive officer of the Federal Reserve Bank of Cleveland, will become a voting member of the Federal Open Market Committee in January, (Desiree Rios/Bloomberg)

Cleveland Federal Reserve President Beth Hammack said Thursday that she supports holding off on another interest-rate cut in December, warning that inflation poses a more serious threat to the economy than a cooling labor market.

“After last week’s meeting, I see monetary policy as barely restrictive, if at all, and it’s not obvious to me that monetary policy should do more at this time,” Hammack said in remarks at the Economic Club of New York.

The Fed lowered rates for the second time this year at its October meeting, bringing the federal-funds rate to a range of 3.75%–4.00%. Investors have broadly expected policymakers to follow with another cut in December.

But Fed Chair Jerome Powell pushed back last week, saying another move is “not a foregone conclusion. Far from it.” Hammack’s comments underscore that point and add to a growing chorus of officials urging patience.

Hammack, who becomes a voting member of the Federal Open Market Committee in January, said she expects inflation to remain above target for years unless policy stays restrictive.

“I see inflation misses starting 2026 around one percentage point, which will take two to three years to resolve,” she said Thursday. “If this happens, it would mean that inflation exceeded our 2% objective for the better part of a decade…without appropriately restrictive policy, this long stretch of elevated inflation could eventually cause high inflation to become embedded into the economy.”

Recent data has been harder to come by as the government shutdown that began Oct. 1 has limited official releases. The latest consumer price index showed annualized inflation running at 3% in September, slightly above the previous month’s 2.9%.

Hammack said the labor market remains resilient, even as some private data suggests softening.

“On the labor market side, I see the unemployment rate starting 2026 a couple of tenths of a percentage point above its longer-run value before coming down over two to three years,” she said. “A range of other indicators, including consumer spending and GDP growth, point to ongoing health of the broader economy, so I do not currently put high odds on a labor market downturn.”

The private data currently available remains mixed. ADP reported on Wednesday that private payrolls rose by 42,000 jobs in October, beating expectations. But new data Thursday from Challenger and Ravello pointed to the largest number of October job cuts in 22 years and showed payrolls falling by 9,000.

Hammack made clear that the balance of risks is still shifted toward inflation. “I think we’re pretty close to neutral right now, which makes me a little bit nervous, given that I see the bigger miss on the inflation side,” she said.

The Fed is set to sit for its final policy meeting of the year on Dec. 9-10.

Write to Nicole Goodkind at nicole.goodkind@barrons.com.