Hammack says Fed may cool demand without hurting jobs

what happened

Cleveland Federal Reserve President Beth Hammack said on Monday that she hopes inflation can be reduced without damaging employment. Newsmetry API reported, citing a Reuters interview, that she identified rapid corporate investment and wealth gains supporting household spending as forces sustaining demand. In her view, inflation appears stuck between 2.5% and 3.0%, while the unemployment rate is 4.2%.

Hammack said sufficiently restrictive monetary policy might slow activity enough to bring inflation down without pushing unemployment above its current level. Business conversations suggest to her that the economy is still booming rather than preparing to retreat. She said she wants growth to continue at a slower pace that creates less pricing pressure. A pullback in capital spending could reduce the need for a sharper hit to consumption, although either side of the economy might weaken.

She said interest rates probably need to rise further to restrain demand, but plans to approach the Fed’s October 27-28 meeting without a fixed position on another increase following September’s move. Hammack is a voting policymaker this year and argued for a hike in July. Investors currently anticipate no rate change in October. She added that the economy needs more restraint, while the appropriate timing remains unresolved.

Hammack said spending is being sustained largely by higher-income households and the wealth effect, with consumption and investment both driving the economy. She is concerned that inflationary behavior may be spreading as AI hyperscalers invest relentlessly and compete for resources, particularly around data centers. Executives may therefore expect elevated inflation and plan price increases that outpace input-cost growth. In her view, curbing investment demand could ease price pressure without layoffs. Since the COVID-19 pandemic, some policymakers have also focused on anchoring inflation expectations while preserving full employment.

why it matters

The remarks matter for markets because Hammack, a policy voter this year, is among the clearest Fed officials calling for demand restraint. Her emphasis on gradual implementation also highlights the tradeoff with a stable labor market.

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