Fed Warns of 'Costly' Inflation Mistakes as Cleveland's Hammack Calls for Action

Federal Reserve Bank of Cleveland President Beth Hammack has warned that inflation will not fall on its own and urged the central bank to take action. In a statement, Hammack said that inflation has remained above 2% for more than five years and is unlikely to return to this target without additional measures.

Hammack emphasized that the longer high inflation persists, the more challenging it becomes to bring it down, calling it 'costly'. She noted that inflation pressures are intensifying from both supply and demand sides, with businesses reporting broader pricing pressures and consumers growing increasingly frustrated by persistently high prices.

The Fed's top priority is now controlling inflation, Hammack stated, due to the strong labor market. Minneapolis Fed President Neel Kashkari echoed Hammack's stance, favoring gradual interest rate hikes to avoid more aggressive policy moves later.

Kashkari also highlighted that recent inflation risks resemble those of the 1970s and the Fed's earlier misjudgment of post-pandemic inflation as 'transitory'. He argued that monetary policy has an important role in preventing repeated supply shocks from entrenching higher inflation.