Fed’s Hammack and Barkin favor a gradual path of further rate hikes as Warsh withholds guidance

Two Federal Reserve officials on Thursday favored a gradual path of interest rate increases to bring down inflation^1,14. Cleveland Fed President Beth Hammack said interest rates need to be restrictive to bring inflation to the central bank’s target². She said benchmark rates must push into restrictive territory and cited persistent inflation pressures⁹.

Hammack said “monetary policy needs to move to a restrictive stance” because inflation has been “too high”¹⁵. She said the Fed might have to raise interest rates again, even if it does so in smaller steps⁶. She said she prefers more frequent, smaller rate adjustments, which she said reduce the risk of policy falling behind^7,8. She also said more work is needed to bring inflation to the 2% target¹². She said the Fed may need to tighten monetary policy gradually to combat inflation¹⁰. Her remarks came in a speech given before an event in Zurich¹⁴.

Richmond Fed President Thomas Barkin said more rate hikes are coming⁴. Barkin joined Hammack in favoring a gradual path of increases to lower inflation, making two regional Fed presidents who signaled further tightening on the same day^1,3.

Why it matters to investors

The Fed held its benchmark rate at 3.75% to 4% last week, with Governor Lisa Cook and Hammack dissenting in favor of an increase⁴. Hammack is one of two voting members of the rate-setting committee who dissented⁵. She and Cook preferred a second consecutive quarter-percentage-point hike at the October meeting¹⁰, favoring a 25 basis point move¹¹.

The Fed raised rates in September, and financial markets broadly expect another increase in December¹³.

The officials’ nod toward gradual increases comes as Fed Chairman Kevin Warsh has eschewed providing guidance about the path of policy^1,3. Warsh has said politics did not play a role¹¹.

What to watch

The size of any next move is now part of the debate. Hammack has repeated her call for small rate increases to curb inflation⁵, and she argued that smaller adjustments lower the risk that policy falls behind⁸.

The December meeting is the next point at which the committee can act on the expectations that markets have built in¹³. The chairman has not offered guidance on that decision³. In the meantime, the dissent by Hammack and Cook at the last meeting shows that support for another increase already exists on the committee^4,12.