Fed's Hammack backs gradual pace of rate hikes, not faster moves

what happened

Cleveland Fed President Beth Hammack said on Thursday that policy must become restrictive to bring inflation back to the 2% target. Speaking at Ohio State University, she appeared to push back against a half-point increase at the December meeting.

Hammack argued that smaller, more frequent increases are easier for businesses and households to absorb and less disruptive to the economy. She said the Fed is not behind the curve at present, though that could change and would need review. She also stressed that her forecasts are not commitments.

The Fed lifted its benchmark rate to 3.75%-4.00% in September and held in July and October, when Hammack dissented. Reuters reports that a quarter-point hike is widely expected at the December 8-9 meeting. Earlier, Governor Christopher Waller appeared to favor a half-point move after October consumer inflation came in above forecasts.

why it matters

For markets, the message is that a voting official backs tightening without haste. That stance reinforces expectations for a measured rate path and supports Treasury yields and the dollar, although views within the Fed on the pace still differ.

market impact

Dollar and US Treasuries: hawkish Fed rhetoric supports yields and the dollar

• ▲US dollar pressure up — expectation of a firmer Fed policy path supports demand for the currency
• ▲US Treasury yields pressure up — signal of further rate increases pressures bond prices

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