In prepared remarks, Hammack, a voting member of the Federal Reserve’s policymaking committee, said a restrictive monetary policy stance is appropriate to ensure a timely return to 2% inflation. Her comments signal that further interest rate hikes could be on the horizon, following the Fed’s first rate increase in three years last month.
Traders see a more than 78% likelihood that the central bank holds rates steady at its meeting later this month, according to the CME FedWatch tool, but an 88% chance of a hike at the final meeting of the year in December.
Hammack noted the breadth of current inflationary pressures and said it will take “some time” to bring annual price growth down to the Fed’s target. The personal consumption expenditures price index, the Fed’s preferred gauge, rose 3.4% year over year in August, with the core reading—excluding volatile food and energy costs—at 3%.
“Long-run inflation expectations have stayed remarkably well anchored despite actual inflation being above target for more than five years,” Hammack said. “But I’m not taking that for granted. With each passing month, persistently elevated inflation raises the risks of an inflationary mindset becoming entrenched in the economy.”