Fed official pours cold water on interest-rate cuts

Another Federal Reserve official is worried about the impact of inflation on American wallets.

This comes after the most recent inflation data for August showed prices were “sticky,” while U.S. consumers were still spending.

Cleveland Fed President Beth Hammack expressed concern that inflation could stay above the Feds target until 2028.

In an interview with CNBC from Frankfurt on Sept. 29, the policymaker said:

• The U.S. central bank has missed its 2% inflation target for more than 4 1/2 years.
• It is likely to keep missing this target for the foreseeable future.

“My forecast is that were going to remain above target for probably the next one to two years, and not really getting back down to our objective of 2% until the end of 2027 or early 2028,” Hammack said.

Federal Reserves monetary policy balances inflation, jobs

The Federal Reserves dual mandate from Congress requires price stability and full unemployment.

• Lower interest rates lead to less unemployment but higher prices.
• Higher interest rates lead to lower inflation but higher unemployment.

The Fed had held off cutting the benchmark Federal Funds Rate this year to monitor the impact of tariff inflation through the nation‘s supply chain and determine wqhether those price increases would be a one-time bump or linger into consumers’ wallets.

The funds rate is now 4% to 4.25%, and CME Group's widely watched FedWatch tool reports a 89.3% chance of another quarter-point cut at the Oct. 29 meeting.

Fed Chair Powell speaks on the risks balancing the Feds mandate

Fed Chairman Jerome Powells most recent speech did not vary much from his comments following the Sept. 17 Federal Open Market Committee meeting.

He didn‘t give hints as to when the next interest-rate cut would occur, although the Fed’s own forecasts for the rest of the year indicate there could be at least one if not two more quarter-point cuts in 2025.

Inflation has eased significantly from its highs of 2022 but remains somewhat elevated relative to the Feds 2% target goal, Powell noted.

He said that near-term risks to inflation were “tilted to the upside and risks to employment to the downside — a challenging situation. Two-sided risks mean that there is no risk-free path.”

Fed President Hammack says monetary policy needs to remain restrictive

Looking at inflation, “the trend is in the wrong direction,” Hammack said at a conference at the European Central Bank on Sept. 29.

Because of that risk to price stability, the U.S. central bank needs to maintain a restrictive policy stance to get inflation down to its 2% goal, repeating a statement she made earlier during the CNBC interview.

“Tariffs are a big part of the story. The part of the inflation story that concerns me — the services part of inflation remains elevated,” Hammack said. “It's harder for me to attribute that to tariff impacts.”

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She said she's most concerned about inflation expectations.

Broadly, inflation expectations have stayed “reasonably well anchored” around the Fed's 2% goal.

However, Hammack is seeing some signs of concern in those expectations.

She doesn't see inflation falling back to the Fed's goal for another one to two years.

The Fed is balancing its dual mandate of price stability and full employment. Complicating that balance, “I'm seeing emerging signs of fragility in the labor market,” she said.

But Hammack points out that the unemployment rate has been reasonably stable between 4% and 4.3% in the past year.

Miran, Bowman forecast multiple interest-rate cuts

Hammack is not a voting member of the FOMC this year, while Federal Reserve Governors Stephen Miran and Michelle Bowman are.

Both spoke recently of the need for multiple interest-rate cuts because of a weakening labor market, in part driven by immigration policy and the rise of AI.

Bowman said that labor-market concerns now outweigh inflation risks in some respects:

• Once tariffs are taken out of the mix, inflation is “not far above” the Feds 2% target.
• The FOMC may already be behind the curve in responding to labor market deterioration.

Bowman called for more decisive, proactive cuts, possibly faster and larger cuts than what has been done so far if labor market weakening continues.

Miran, the lone dissenter at the last FOMC meeting, has been pressing for the same.