Cleveland Federal Reserve president Beth Hammack added to a growing chorus from central bank officials projecting that interest rates are likely to remain on hold, given the uncertainty about the impact the conflict in Iran is having on both inflation and the job market.
“Right now, my base case is that we’ll be on hold for quite some time around this level, which is pretty close to what I think of as the natural rate of interest,” Hammack said Thursday in an interview with NPR. “I think we have pressures coming on both sides of our mandate.”
Hammack said she is watching how long the war in Iran, which is now in its third month, continues. She noted that typically when there’s an oil price surge from a conflict, the central bank tends to treat it as a one-off and looks through it with the expectation that prices will come back down. But she worries that with inflation stuck above the Fed’s 2% goal for more than five years, the pressures from the Iran war could spell more persistent inflation.
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“This is probably the fourth shock that we’ve had in five years,” Hammack said, referencing the pandemic’s disruption of global supply chains, the Russia-Ukraine invasion, and tariffs.
“Is each one of these really independent? Is each one of these going to be short-lived, or is this starting to build in consumers and businesses’ minds to create more of an inflationary mindset?”
Hammack was one of three members of the Federal Open Market Committee who supported holding rates steady, but dissented over language in the policy statement that she felt signaled the next move would be an interest rate cut.
The policy statement released by the FOMC following the April 29 meeting said officials will consider the extent and timing of “additional adjustments” to interest rates.
Hammack said that since the conflict in Iran could impact both inflation and the job market — the two sides of the Fed’s mandates — she felt the Fed needs to be “a little bit more neutral” about how things will play out and what that might mean for interest rates.
“The statement that we put out is that interest rates were on hold, but we have this signal in there that it’s more likely that the next move will be a move down,” said Hammack. “I thought that was a little bit misleading, just given my view of where the economy is.”
Separately on Thursday, Boston Fed president Susan Collins, who is not a voting member of the Federal Open Market Committee this year, said she too disagreed with the language in the policy statement suggesting the next move would eventually be a rate cut.
