Intensifying Hawk-Dove Dispute within the Fed: Hammack Calls for a "Monitoring Period" in Policy
Beth Hammack, President of the Federal Reserve Bank of Cleveland, stated in a recent interview that following a cumulative 75 basis point rate cut in the first quarter, the current monetary policy is in a "suitable pause" phase. She believes that maintaining existing interest rate levels is the most prudent baseline expectation while assessing the lagging impact of previous rate cuts on the overall economy. Hammack emphasized that unless the market provides more conclusive evidence of inflation steadfastly moving toward the 2% target or the labor market shows substantial unexpected deterioration, there should be no rush to take further action.
Notably, Hammack will officially gain voting rights in the Federal Open Market Committee (FOMC) in 2026, and her statements reflect the increasingly public divisions within the Fed. At the latest policy meeting on December 10, the rate cut decision was met with three dissenting votes, the highest since 2019. Officials are dividing into two camps: one concerned about the risk of a cooling labor market, and the other insisting that fighting inflation remains an unfinished endeavor that should not be taken lightly.
"Noise" in Data Interferes with Decision-Making: Caution Against Inflation Rebounding at the 3% Mark
Regarding the recently released economic data, Hammack's attitude is particularly cautious. Although the year-over-year increase in core CPI narrowed to 2.6% in November, the lowest since 2021, the record government shutdown resulting in missing samples has widespread doubts about the accuracy of the data. Hammack bluntly stated that the latest inflation report contains a lot of "noise" and should not overly rely on a single data point. She pointed out that over the past year and a half, inflation has hovered around 3% several times, and corporate input costs still have potential to rise, so the risk of prices rising again has not been completely eliminated.
This concern is not unfounded. Although the unemployment rate rose from 4.4% in September to 4.6% in November, indicating a cooling labor market, Hammack still regards "ensuring that inflation returns to the target" as the primary task. She made it clear that before the next meeting, policymakers have plenty of time to observe the evolution of the economic situation. This strategy of "buying time for space" aims to avoid triggering an inflation rebound by cutting rates too quickly and excessively, thereby protecting the Fed's policy credibility.
Policy Stance Leaning "Slightly Tight": Internal Divide Signals Increased Rate Path Uncertainty
Following the December rate cut, Hammack's stance shifted to maintaining rates at a "slightly tight" level. She believes that the existing 75 basis point rate cut has provided necessary support to employment, and the focus should now be on remaining vigilant. The post-meeting release of the rate dot plot also confirmed this tightening inclination, with as many as six officials inclined to keep rates unchanged for some time, indicating that the Fed's previous continuous rate cut path may face interruption.
This intensifying internal division actually reveals the current complex "soft landing" challenge of the US economy. On one hand is the resilience of inflation and the interference in judgment caused by data distortion, and on the other is the political and social pressure brought by a slowing labor market. For Hammack, accomplishing the goal of bringing inflation back down is an unshakable bottom line. This cautious yet determined hawkish voice is becoming a key force in restraining the Fed from continuing aggressive rate cuts, adding more uncertainty to future interest rate trends.
