NEW YORK, March 6 (Reuters) – Cleveland Federal Reserve Bank President Beth Hammock said on Friday he did not need to change the stance of monetary policy in an economy where inflation is still “very high”.
Given the Fed’s need to balance “high” inflation and a “soft” labor market, these factors combined with last year’s rate cuts leave monetary policy “in a good position” where the impact of the central bank’s interest rate target on the economy is neutral, Hammock said in a speech before the US Monetary Policy Forum in New York.
“Under my base case, I think policy should be on hold for a while as we see evidence that inflation is coming down and the labor market is stabilizing more,” Hammock said.
The Fed cut its federal funds rate target by three quarters of a percentage point last year to between 3.5% and 3.75% to help bolster a flagging jobs market while still keeping enough room for low inflation that stands well above the Fed’s 2% target.
Hammock, who has a rate-setting vote on the Federal Open Market Committee this year, was skeptical of the Fed’s push to cut rates last year due to high inflation. The outlook for Fed policy is further challenged by the impact of President Donald Trump’s attack on Iran, which has pushed up energy prices and renewed fears of sustained inflation gains.
“I see inflationary pressures as broad-based,” Hammock said, adding, “Tariffs are only one area of concern for businesses, which also report that rising prices for health insurance and electricity are driving up costs.”
Hammock spent much of his speech addressing issues surrounding the dollar and its vision as the world’s global reserve currency.
The official said the dominance of the dollar depends on strong US institutions and legal system. There are no real contenders to displace the dollar, Hammock said, amid evidence that there has been no real retreat from dollar holdings so far. The rise of stablecoins, called the dollar, could also strengthen demand for the currency.
“It’s hard to imagine any major changes to the global role of the dollar,” Hammock said. “One reason is that the more people use money, the stronger the network effects and the bigger the benefits,” she said.
(Reporting by Michael S. Derby; Editing by Chizo Nomiyama)
