Fed’s Hammack backs restrictive rates, cites persistent inflation pressures

Federal Reserve Bank of Cleveland President Beth Hammack said Thursday that benchmark interest rates must push into restrictive territory to rein in persistent inflation, advocating for measured, frequent policy adjustments to prevent the central bank from falling behind the curve.

Her remarks, delivered at the SNB and Its Watchers Conference in Zurich, follow her dissent alongside one other official at last week’s Federal Open Market Committee meeting, where policymakers elected to pause borrowing costs despite firm price pressures. Hammack underscored that September headline and core PCE inflation, at 3.6% and 3.1%, respectively, remain uncomfortably above the central bank’s 2% objective after six years of elevated readings, signaling that tighter policy is essential to keep inflationary expectations anchored.

Addressing broader global financial dynamics, Hammack argued that maintaining price stability and central bank independence is fundamental to preserving the greenback's role as the preeminent reserve asset. Although the dollar’s share of global foreign exchange reserves has moderated to roughly 57% from peak levels above 70% in the early 2000s, Hammack noted that unparalleled liquidity in U.S. capital markets and strong legal frameworks ensure its dominance will not quickly erode.

Turning to digital assets, the Cleveland Fed chief noted that payment stablecoins are reinforcing rather than dismantling the dollar's international reach. Because these instruments are predominantly dollar-pegged and backed by short-term government debt, expanding circulation could stimulate steady demand for Treasury bills and exert downward pressure on yields.

Hammack struck a cautious tone regarding the domestic regulatory environment, questioning whether recent legislation will generate a meaningful surge in worldwide dollar demand. The GENIUS Act, signed in mid-2025 with implementation scheduled for January, introduces redemption standards that may bifurcate the market between onshore compliant tokens and overseas alternatives.

Markets now turn to the Fed's upcoming gatherings, where investors increasingly price in rate increases in December and early 2027 to address lingering price pressures. Hammack reiterated that steady, incremental rate hikes remain the least disruptive path to tightening financial conditions without jarring broader economic stability.