Hammack Criticizes Fed's "Cut Bias," Calls for More Neutral Message
Federal Reserve Bank of Cleveland President Beth Hammack said the post-meeting statement's wording, which suggested the next policy move was more likely to be an interest rate cut, was inconsistent with her view of the economic outlook.
In a radio interview on Thursday (May 7), Hammack considered the message potentially "a little misleading" because, although the decision to hold interest rates steady, the statement was seen as inserting a signal that the next move was likely to be lower. She said it would have been more appropriate for the statement to take a neutral stance, suggesting the next move could be either higher or lower.
Hammack emphasized that she supports the decision to hold interest rates, but her baseline is that interest rates will remain "for quite some time." She also highlighted the growing uncertainty over the economic outlook and the future policy path.
Hammack's statement exacerbated internal friction that emerged at last week's policy meeting, when she was among three Fed officials who dissented over objections to wording that suggested a resumption of interest rate cuts.
According to Hammack, the duration of the war with Iran is an important variable to monitor because rising prices could depress spending and impact employment. If inflation remains high, he believes pressure could spread to the demand side; when businesses see product demand weakening, they could potentially hold back hiring.
For the market, the emphasis in the statement's language indicates an effort by some officials to reduce the "easing bias" and reopen the two-way policy risk, with a primary focus on the combination of persistently high inflation, the impact of prices on demand, and the possibility of weakening hiring if cost pressures persist. (Arl)
Source: Newsmaker.id
