Fed hawks reaffirm case for rate hikes, citing stubborn inflation

Hawkish officials at the Federal Reserve have been pressing the case for additional interest rate hikes to rein in inflation. With US inflation running above the Fed's 2 percent target for an extended period and the labor market showing signs of recovery, calls for maintaining a restrictive monetary policy stance are growing louder.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said Thursday (local time) at an event in Zurich, Switzerland, that monetary policy would need to shift to a more restrictive stance to bring inflation back to 2 percent in a timely manner, according to Bloomberg.

On the question of how to adjust rates, Hammack said she prefers smaller, more frequent moves over large, one-time adjustments. "If possible, I'd prefer to move more frequently and in smaller increments," she said, adding that such an approach would help reduce the risk of falling behind on policy and prevent inflation expectations from becoming entrenched.

Hammack was one of two Federal Open Market Committee members who voted against the decision to hold the benchmark interest rate steady at last week's FOMC meeting. While the Fed opted to keep rates at their current level, Hammack stood firm in her view that tighter policy is needed to restore price stability.

She particularly noted that US inflation has exceeded the Fed's 2 percent target for nearly six years. With price pressures appearing broadly across both supply and demand, she said inflation is unlikely to ease quickly.

Hammack offered a relatively upbeat assessment of the labor market as well. While hiring and layoffs had both remained subdued for some time, she said some signs of improvement have emerged of late. "From an employment standpoint — one of the central bank's mandates — the economy is performing quite well," she said. "If anything, the labor market appears to be strengthening somewhat."

The remarks suggest she sees little need to ease monetary policy in response to a slowdown in hiring. With the labor market holding up relatively well, the Fed leaves room for keeping its focus on price stability.

Tom Barkin, president of the Federal Reserve Bank of Richmond, also reaffirmed his support for gradual rate increases Thursday. Speaking at an event in Charlotte, North Carolina, Barkin said current US inflation remains too high and that price pressures are persisting.

On the pace of future rate increases, he said "it makes sense to proceed gradually," signaling a preference for a step-by-step approach over abrupt policy shifts. He did not, however, specify what level the benchmark interest rate should ultimately reach.

Even after the Fed held rates steady last week, some officials have continued to publicly stress the need for further tightening, underscoring an ongoing divergence of views within the central bank over the future direction of monetary policy. Analysts say the push for rate hikes could gain further momentum if inflation pressures persist and the labor market continues to strengthen.