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• Key insight: After the Bureau of Labor Statistics’ most recent employment report showed a net loss of 23,000 jobs last month, some analysts revised their expectations about the Fed’s next move. Cleveland Fed President Beth Hammack said the reading did not change her outlook.
• Expert quote: “When I look at policy broadly, I don’t see any tension in our mandate. We’ve been missing on the inflation side for more than five years, but the labor market is right around my estimate of full employment. I don’t think policy is restrictive, meaningfully restrictive at this point.” — Beth Hammack, Federal Reserve Bank of Cleveland president
• Forward Look: What the FOMC does at its next policy meeting will be shaped by further data releases during the inter-meeting period, including the BLS’s inflation print on Wednesday.

Federal Reserve Bank of Cleveland President Beth Hammack is not backing down from her call for higher interest rates in the face of a potential weakening of the labor market. 

Instead, she suggested that multiple rate hikes could be needed before the end of this year to tamp down on what she sees as persistently high inflation.

“I would say in general, one 25 basis point move probably doesn’t do a whole lot for the economy, so it’s probably, you know, some number of movements,” Hammock said during an interview with Yahoo Finance on Monday afternoon. “But, I don’t want to prejudge what that number is going to be.”

Hammock — one of three Federal Open Market Committee members to vote in favor of a rate hike last month — said her top concern remains inflation, which she said has become broad-based in the economy and is persisting because monetary policy is not holding it back. 

“When I look at policy broadly, I don’t see any tension in our mandate. We’ve been missing on the inflation side for more than five years, but the labor market is right around my estimate of full employment,” she said. “I don’t think policy is restrictive, meaningfully restrictive at this point.”

During the interview, Hammack described last week’s employment report as “mixed,” noting that while the economy had a net loss of 23,000 jobs in July, the unemployment rate also ticked down by one-tenth of a percentage point.

She also said she is reluctant to put too much emphasis on any single data point.

“Any one of those jobs numbers reports is very volatile, they move around, they’re very noisy,” she said. “I try to look at the average over some period of time.”

During the year, single months have seen employment declines as large as 156,000 in February and gains as high as 214,000 in March. On average, the economy has added around 26,000 jobs per month during the past 12 months. Given the crackdown on immigration and the rising number of older workers moving into retirement age, Hammock said this rate of growth may be consistent with the “break-even” point for the workforce. 

On the inflation side of the equation, Hammock said she does not believe headline inflation — 3.7% in June, according to the Bureau of Labor Statistics — is the result only of supply-side shocks from tariffs and the war in Iran. Based on conversations with business owners in her district, which spans Ohio, western Pennsylvania and parts of Kentucky and West Virginia, she believes the run-up in prices is more wide ranging and tied to excessive demand. 

“I’m hearing about insurance prices that are up,” she said. “I’m hearing about the AI buildout. I’m hearing about all the costs to get materials for that and energy prices … a supermarket chain was talking about how energy prices for them have been going up significantly because of some of those other pressures. And so to me, it’s not just coming from one or two of these shocks that we’ve seen. It’s a much more broad-based effect.”

Hammack, who has been one of the more openly hawkish members — meaning she generally emphasizes price stability over employment growth — joined Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari in voting against the FOMC’s policy decision to hold the federal funds rate steady between 3.5% and 3.75%. All three favored a rate hike to combat inflation. 

The Fed will get its next key economic indicator on Wednesday morning with the Bureau of Labor Statistics’ consumer price index report for July, which will determine whether inflation continued to decelerate last month or if it picked up steam. Even if the report does show an improvement in the inflation situation, Hammack said that alone would not be enough to convince her that the Fed’s current policy rate is sufficiently restrictive.

“Well, certainly, I would be very happy to see inflation prints that are coming in lower. Nothing would make me feel better than to be wrong that we need to change the stance of policy to help bring inflation back to target,” she said. “But from where I sit, I just don’t see it coming back on its own.”

While Hammack and the other dissenters have discussed their views of the evolving economic outlook and their responses to them, the broader committee has clamped down on its discussion of its reaction function. Fed Chair Kevin Warsh has, in his own remarks, cut out anything that could be deemed “forward guidance” about the path of policy. 

During the interview, Hammack said the Fed has an obligation to be transparent with the public and doing so has a positive impact on businesses and markets.

“There’s a large body of research that shows that when business owners and individuals understand our framework behind our decisions, they’re able to make better decisions for themselves,” Hammack said. “And so that’s really where I think the credibility comes in, is being transparent and clear about what our objective is. Our objective is to deliver that 2% inflation, and so we need to make sure that we are able to do that.”

The former head of Goldman Sachs global financing group, Hammack added that while it is important for the Fed to get clear signals from financial markets, the Fed should not rely on markets to do its job of restraining financial activity through higher rates. 

“I also, as a former market participant, know that most market participants are focused on making money for themselves and their clients and they do that by judging what we will do, not what we should do,” she said. “So as a market participant, you want to bet on what the Fed is going to do, not what the right prescription for the economy is, necessarily, if those two things are out of sync. … The markets are a complement for the Fed, they’re not a substitute.”