Cleveland Fed's Hammack flags risk of entrenched inflation mindset
Cleveland Fed President Beth Hammack said she is increasingly concerned that prolonged above-target inflation could cause the public to lose faith in the central bank's 2% goal.
Federal Reserve Bank of Cleveland President Beth Hammack said on Friday that she is growing more concerned that inflation's long stretch above the central bank's 2% target could undermine public confidence in the Fed's ability to bring price pressures back down.
Speaking at an event hosted by her bank, Hammack pointed to the risk that an inflationary mindset takes hold among households and businesses after more than five years of inflation running above target.
"The biggest risk that I see with inflation right now is that an inflationary mindset could start to set in," she said.
Hammack said the Fed has a role to play in preventing that outcome, arguing that policy needs to remain restrictive to help guide inflation back to the 2% goal.
"We need to make sure that policy is at a restrictive stance to help bring things back down to target," she said.
Her remarks add to the debate within the central bank over how long borrowing costs should stay elevated, with officials weighing the durability of recent disinflation against the danger that expectations of future price growth become unmoored.