Fed's Hammack: Gradual rate-hike path best way forward for policy
Cleveland Federal Reserve President Beth Hammack argued on Thursday that gradual rate hikes are less disruptive to the economy and the financial system, per Reuters.
Key takeaways
"Monetary policy needs to move to a restrictive stance."
"Gradual rate-hike path is the best way forward for monetary policy."
"US central bank's independence is critical to get inflation to 2%."
"Gradual rate hikes best way to make sure us central bank gets inflation back to 2%."
"Inflation has been too high, moving in wrong direction."
"Dollar remains word’s top reserve currency."
Hammack backs gradual hikes and restrictive stance, keeping Fed tone firmly hawkish
Fed’s Hammack delivered a distinctly hawkish message, with an FXS Speechtracker score of 8.1/10, above the established baseline of 7.6/10, underscoring a stronger-than-usual tightening bias. The emphasis that “gradual rate hikes” are “less disruptive” yet still necessary to move policy into a “restrictive stance,” alongside the warning that inflation is “too high” and “moving in the wrong direction,” signals a clear preference for continued tightening rather than a pause.
The FXS Fed Sentiment Index rose by 1.05 points to 145.23, reinforcing that Hammack’s remarks push the overall Fed tone deeper into hawkish territory. With the index well above the neutral 100 mark, the speech aligns with a policy path biased toward additional rate hikes and sustained restrictive settings, consistent with the elevated FXS Speechtracker reading.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
