Hammack: Fed ‘At or Near’ Point of Slowing Rate Cuts

Key Takeaways:

1. Policy Shift Toward Caution:

   • Cleveland Fed President Beth Hammack stated the Fed is "at or near" the point where slowing the pace of rate reductions is appropriate.
   • She emphasized maintaining a “modestly restrictive” stance as the economy remains strong and inflation elevated.

2. Rate Cut Expectations:

   • Hammack agreed with market forecasts of one more rate cut by January and a few additional reductions in 2025.
   • Future decisions will be data-dependent, with a cautious approach to avoid over-easing prematurely.

3. Neutral Rate and Restrictive Policy:

   • Interest rates may be close to the neutral level, where they neither slow nor stimulate the economy.
   • Hammack highlighted the need to move gradually to calibrate policy for sustainable economic stability.

4. Economic Context:

   • Recent months showed stronger-than-expected inflation, growth, and labor market performance, necessitating a slower pace of cuts.
   • Inflation remains the top priority, with housing inflation and a healthy labor market requiring careful monitoring.

5. Labor Market and Inflation Outlook:

   • November hiring rebounded, but the unemployment rate ticked up to 4.2%.
   • Hammack remains focused on achieving the 2% inflation target, avoiding preemptive easing amid labor market strength.

6. Fed Policy Path:

   • Traders see an 89% chance of a December rate cut following the latest jobs data.
   • Chair Jerome Powell and other officials have also indicated support for a cautious approach to rate reductions.

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Conclusion:

Hammack’s comments reflect a shift to slower rate cuts to balance economic strength with inflationary concerns. As the Fed nears a neutral policy stance, gradual adjustments will be key to sustaining long-term economic stability.