Fed's Hammack says interest rates could be on hold 'for quite some time'

By Michael S. Derby

Feb 10 (Reuters) - Federal Reserve Bank of Cleveland President Beth Hammack said on Tuesday the U.S. central bank faces no urgency to change the setting of interest rates this year amid a “cautiously optimistic” outlook for economic activity.

Given the likely outlook, “we could be on hold for quite some time” when it comes to the setting of the central bank’s interest rate target range, Hammack said in the text of a speech prepared for delivery before the Ohio Bankers League in Columbus, Ohio.

“I believe we are in a good position to keep the funds rate at this level and see how things play out” with monetary policy most likely around a setting that neither restrains nor drives economic activity, she said.

“Rather than trying to fine tune the funds rate, I’d prefer to err on the side of patience as we assess the impact of recent rate reductions and monitor how the economy performs,” Hammack said, adding, “a steady funds rate would reflect positive economic developments.”

Hammack, who holds a vote on the interest-rate-setting Federal Open Market Committee this year, said she supported the central bank’s decision to hold its interest rate target range steady at between 3.5% and 3.75% at the end of January.

The Fed trimmed its target by 75 basis points last year as it sought to buoy a softening job market while at the same time keep in place enough restraint to bring inflation back down to the 2% target, which it has overshot for years.

Hammack has been a skeptic of rate cuts given the state of inflation dynamics. Fed officials have penciled in rate cuts for this year but given little guidance about timing in recent comments.

It’s very likely rate cuts could reemerge as an issue if Kevin Warsh is confirmed to succeed Jerome Powell as Fed chair when the current leader’s term ends in May. President Donald Trump has pressured the Fed aggressively for rate cuts and said a desire for aggressive easing would be a key thing he’d want from any Fed leader.

In her comments, Hammack noted the economic outlook is bright but at the same time, she noted inflation remains “too high” and said it was important that price pressures ease amid risks it could be stuck around 3% this year.

“Growth this year should get a boost from easier financial conditions, recent interest rate reductions, and fiscal support, among other factors,” Hammack said.

On the hiring front, information points to some stability right now. “Both official data and what we’re hearing from businesses point to a ‘low-hire, low-fire’ environment where companies aren’t adding many workers, but they’re not laying off a lot either,” Hammack said.