Fed's Hammack says interest rates likely on hold for some time

By Michael S. Derby

NEW YORK, March 6 (Reuters) - Federal Reserve Bank of Cleveland President Beth Hammack said Friday she sees no imminent need to change the stance of monetary policy in an economy where inflation is still “too high.”

Given the Fed’s need to balance “elevated” inflation and a “softening” job market, these factors joined with rate cuts done last year leave monetary policy “in a good position” where the impact of the central bank interest rate target on the economy is neutral, Hammack said in the text of a speech before the U.S. Monetary Policy Forum in New York City.

“Under my base case, I think policy should be on hold for quite some time as we see evidence that inflation is coming down and the labor market stabilizes further,” Hammack said, while adding “it’s easy to envision other scenarios, as well, so I see two-sided risks to rates.”

The Fed trimmed its federal funds target rate range by three quarters of a percentage point last year to between 3.5% and 3.75% to help bolster a flagging jobs market while still keeping enough restraint on to lower inflation that has stood well above the Fed’s 2% target.

Hammack, who has a vote on the rate-setting Federal Open Market Committee this year, was skeptical of the Fed’s push to cut rates last year given high inflation. The outlook for Fed policy is being further challenged by the impact of President Donald Trump's attack on Iran, which has driven up energy prices and renewed fears of persistent inflation gains.

Hammack said “I see inflationary pressures as broad based,” and added, “tariffs are only one area of concern for businesses, which also report that rising prices for health insurance and electricity are pushing up costs.”

Hammack spent much of her speech on issues surrounding the dollar and its outlook as the world’s global reserve currency.

The official said dollar dominance owes to strong U.S. institutions and the legal system. There are no real rivals to displacing the dollar, Hammack said, amid evidence that thus far there’s been no real retreat from dollar holdings. The rise of stablecoins, which are dollar-denominated, could also bolster demand for the currency.

“It’s difficult to envision imminent major changes to the dollar’s international role,” Hammack said. “One reason is that the more people use a currency, the stronger the network effects and the bigger the benefits,” she said.