Federal Reserve Hawks Strike Again! Hammack Says Rates Need to Rise to Restrictive Levels, Favors More Frequent and Smaller Rate Hikes

Federal Reserve officials have signaled a hawkish stance, advocating for more frequent, smaller rate hikes to combat persistently above-target price pressures.

Cleveland Fed President Beth Hammack said on Thursday that monetary policy needs to turn restrictive in order to bring inflation back to the 2% target in a timely manner. She also pointed out that inflation has remained above target for nearly six years, with broad-based price pressures driven by both supply and demand factors.

Hammack was one of two Fed officials who dissented in last week's rate decision. After the Fed held rates steady, she reiterated her position during an event in Zurich, expressing a preference for "making more frequent, smaller adjustments whenever possible," stating that this approach could reduce the risk of policy lagging behind developments and help prevent inflation expectations from becoming entrenched.

At the same time, Richmond Fed President Tom Barkin gave a separate speech on Thursday, reaffirming support for a "gradual" pace of rate hikes but declined to indicate where rates would ultimately peak. Several Fed officials speaking since the last meeting have also advocated for a moderate tightening pace to minimize the impact on financial markets and the real economy.

Futures market pricing indicates that investors currently expect the Fed to raise rates once in both December and next March.

Hawkish Dissent: Hammack Advocates Restrictive Rate Stance

Hammack was in the minority at the previous meeting. During last week’s policy meeting, the Fed decided by majority vote to keep its benchmark rate unchanged, with Hammack and another official dissenting—insisting that the prevailing inflation environment calls for a more restrictive policy orientation.

She reiterated on Thursday that inflation has persisted above target for nearly six years, and that price pressures are broad-based—not confined to any single sector or factor.

She stated that recurring supply shocks heighten the risk of both businesses and consumers forming inflation expectations. Once such expectations are entrenched, it becomes significantly more challenging for the central bank to achieve its price stability mandate.

Regarding the pace of rate hikes, Hammack expressed a preference for a “small steps, quick moves” approach, believing that more frequent, smaller rate increases are more closely aligned with economic realities compared to large, infrequent adjustments, and can avoid falling behind developments.

On meeting arrangements, Fed Chair Walsh announced last week plans to adjust the annual policy meeting schedule by 2028, reducing formal rate-setting meetings from eight to six per year, with two additional meetings dedicated to macro-monetary policy framework discussions. Both Hammack and Barkin appeared unconcerned by this. “Going from eight to six is a pretty modest change,” Hammack said.

Labor Market Shows Signs of Gradual Strengthening

In terms of employment, Hammack’s assessment was relatively optimistic, suggesting that the U.S. labor market, long characterized by a stalemate of low hiring and low layoffs, may be seeing marginal improvement.

“From a labor market perspective, I see the economy running quite well,” she said, adding that she has seen “some modest signs of potential strengthening in the labor market.”

This statement indicates that labor market resilience provides additional support for the Fed to maintain a restrictive rate stance, with little near-term room for rate cuts.

Central Bank Independence Tied Directly to Dollar Status

Hammack also commented on the relationship between the dollar’s dominant status and central bank independence, directly linking the two. She stated that the dollar’s leading position depends on America’s sound rule of law, the accessibility and liquidity of dollar assets, and the independent operation of the central bank.

She emphasized that the Fed, through its actions, has established institutional credibility by formulating monetary policy based on evidence and economic data, rather than short-term political pressures. “This credibility helps us achieve our goals, including low and stable inflation, while supporting the dollar’s status.”

Hammack’s remarks came just two days after U.S. midterm election results were announced. In this election, the Democratic Party won control of both chambers of Congress, which is seen by some as potentially reducing Trump’s ability to pressure the Fed on rate decisions.

Stablecoin Expansion Path: AI Could Be a Key Variable

Hammack also made a rare statement on digital asset trends, identifying the rise of artificial intelligence as a potential catalyst for mass stablecoin adoption.

She noted that stablecoin use remains limited, but if technology giants with large user networks such as Google or Amazon were to launch their own tokens, the market could expand rapidly. At the same time, autonomous AI systems could also drive significant growth in stablecoin usage.

“If more and more AI agents need to conduct buy and sell transactions, and they start using stablecoins or other digital assets rather than processing funds through credit cards or traditional payment channels, this could mark a substantial transformation,” she said. “We have not yet seen these use cases, but we are monitoring closely.”