By Michael S. Derby
NEW YORK (Reuters) -Federal Reserve Bank of Cleveland President Beth Hammack said Friday she voted against the central bank’s rate cut earlier this week because economic strength and the inflation outlook argued against easing policy.
With monetary policy “not far” from a neutral stance, Hammack said she wants monetary policy to hold steady “until we see further evidence that inflation is resuming its path to our 2 percent objective,” she said in a statement released Friday as the quiet period around the most Federal Open Market Committee ended.
Leaving the target rate steady at this week’s meeting “was the best choice given the strength of recent economic data, accommodative financial conditions, and my forecast that inflation will remain somewhat above 2 percent over the next year amid a healthy labor market,” she said.
On Wednesday, the Fed met expectations and cut its federal funds target range by a quarter percentage point, to between 4.25% and 4.5%. As part of the meeting, the Fed also marked down the number of rate cuts it expects to do next year amid a notable increase in the expected levels of inflation.
Hammack was the only dissenting vote at the meeting although Fed forecasts suggest some other officials also preferred no rate change. All Fed governors vote on FOMC decisions, but the remaining slots rotate for regional Fed bank presidents.
The shift in the inflation outlook and the elusiveness of getting inflation back to 2% in a timely fashion caused some to question why the Fed lowered rates at all, and how much of the shift in the outlook was tied to factoring in the possible impact of President-elect Donald Trump’s economic agenda, which features inflation-fueling trade tariffs and deportations.
At his press conference, Powell tied the updated forecasts to how recent data has come in and said of this week’s action that the easing “was a closer call, but we decided it was the right call.” Even with rate cuts, Powell continues to view monetary policy as “significantly restrictive” which means that even at a lower setting officials believe it will still work to temper rising prices.
Hammack’s dissent was notable as the policymaker had taken office only in August and has participated in only three FOMC meetings. What’s more, Hammack, with a long career in financial markets before coming to the Cleveland Fed, had only recently given her first policy speech, where she had suggested now was a time for caution with monetary policy.
In her statement, Hammack said her vote against the consensus was also “a close call” and that she looked forward to future debates with her colleagues.
Hammack said with the job market in a good place the Fed’s main focus should be on inflation amid ongoing upside risks. To get inflation back to the 2% target “I believe that monetary policy will need to remain modestly restrictive for some time,” the official said.
