Hammack Warns of Inflation Risks as US Economy Shows Resilience

Federal Reserve Bank of Cleveland President Beth Hammack warned that persistently high inflation could lead to entrenched elevated price expectations among US households and businesses. She stated that monetary policy may not yet be sufficiently restrictive, citing resilient demand, strong business investment, and a stable labor market.

Hammack noted that the personal consumption expenditures (PCE) price index rose 3.7% in July from a year earlier, while underlying inflation also remained above the central bank's goal. The Fed raised its benchmark interest-rate target by a quarter percentage point earlier this month, taking it to a range of 3.75% to 4%.

Hammack expressed concern about broader inflation sentiment among households and businesses, questioning how a prolonged period of above-target inflation could affect their behavior and decisions. She stated that businesses and households could gradually adjust their expectations and behavior to accommodate higher prices, potentially creating a more persistent inflationary environment and complicating the Fed's policy challenge.