Fed’s Hammack warns inflation mindset is the biggest risk

The Cleveland Fed President Beth Hammack is crossing the wires on Friday. She said that “the biggest risk with inflation is the formation of an inflationary mindset” in a panel discussion hosted by the Cleveland Fed, with Vujcic, the Vice President of the European Central Bank, and Banxico’s Deputy Governor Jonathan Heath.

Hammack reiterated that the Fed needs to make progress on lowering inflation and that it is important to have restrictive policy rates.

Key highlights:

The biggest risk with inflation is the formation of an inflationary mindset

The public has been dealing with above-target inflation for an extended period

Growth has held up well, the job market is stable.

Worried about demand-related pressure on inflation

Capital expenditures will pressure inflation for a while

If we don't make progress lowering inflation, expectations could shift.

Consumer spending and CAPEX are sources of pressure

Important to have restrictive policy rates

The Fed needs to make sure policy is at a restrictive stance to lower inflation