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Fed’s Hammack: rates must remain restrictive due to inflation
Economy
Beth Hammack, President of the Federal Reserve Bank of Cleveland, stated on Thursday that benchmark interest rates need to move into restrictive territory to curb persistent inflationary pressures.
She advocated for measured and frequent policy adjustments to ensure the central bank does not fall behind the curve.
Her remarks, delivered at the "SNB and Its Watchers" conference in Zurich, follow her dissent—alongside another committee member—regarding the decision made last week by the Federal Open Market Committee (FOMC) to pause changes to borrowing costs, despite persistent price pressures. Hammack highlighted that in September, headline and core PCE inflation stood at 3.6% and 3.1%, respectively—levels that remain significantly above the central bank’s 2% target after six years of elevated readings—signaling a need for tighter policy to anchor inflation expectations.
Addressing broader global financial trends, Hammack noted that maintaining price stability and central bank independence is fundamental to preserving the dollar’s role as the world’s primary reserve asset. Although the dollar’s share of global foreign exchange reserves has declined to approximately 57%—down from a peak of over 70% in the early 2000s—Hammack emphasized that the unparalleled liquidity of U.S. capital markets and a robust legal framework ensure that its dominance will not wane anytime soon. Turning to the topic of digital assets, the head of the Federal Reserve Bank of Cleveland noted that payment stablecoins strengthen, rather than undermine, the international influence of the U.S. dollar. Since these instruments are primarily pegged to the dollar and backed by short-term government debt, an increase in their circulation could drive sustained demand for Treasury bills and exert downward pressure on yields.
Hammack expressed caution regarding the domestic regulatory environment, questioning whether recently enacted legislation would lead to a significant rise in global demand for the dollar. The GENIUS Act—signed in mid-2025 and set to take effect in January—introduces redemption standards that could bifurcate the market, distinguishing between compliant tokens used domestically and alternative options available abroad.
Market attention is now focused on upcoming Federal Reserve meetings; investors are increasingly pricing in interest rate hikes for December and early 2027, aimed at curbing persistent price pressures. Hammack reiterated that a measured, gradual approach to raising rates remains the least disruptive path toward tightening financial conditions, without causing a sharp destabilization of the broader economy.