Cleveland Fed President insists cutting rates brings serious risks

Cleveland Federal Reserve President Beth Hammack said on Monday that inflation in the United States has not moved for years, and cutting rates now could bring serious risks, according to her comments on CNBC’s Squawk Box Europe.

Beth explained that the Fed has failed to meet its 2% inflation target for more than four-and-a-half years. She pointed to rising costs across the board, stressing that services are her biggest concern.“On the inflation side right now, I continue to be worried about where we are from an inflation perspective,” she said.

“We have been missing our mandate on the inflation side, our objective of 2%, for more than four-and-a-half years, and I continue to see that we have pressure in inflation both in the headline, in the core, and particularly, where I am worried about it, is I’m seeing it in the services.”

Beth was asked directly if the Fed made a mistake by cutting rates earlier this month. She didn’t say yes, but she called it “a challenging time for monetary policy,” making clear the central bank is under pressure from both sides of its mandate.

The Fed reduced its benchmark overnight lending rate by 25 basis points to a range of 4.00% to 4.25%, the first cut in months, and signaled two more before the year ends. Wall Street expected this to be the start of faster cuts, but strong economic data released since has forced traders to backtrack. The optimism that the Fed would move quickly is now fading.

Beth stresses inflation risk over jobs

Beth said the labor market still looks “reasonably healthy” and “broadly in balance,” but inflation is not under control. She said she does not expect inflation to come back down to the Fed’s 2% goal until late 2027 or early 2028.

That is a long timeline, and she warned that staying too loose now could push the problem further out. “So, again, to me, when I balance those two sides of our mandate, I think we really need to maintain a restrictive stance of policy so that we can get inflation back down to our goal,” she said.

Markets are waiting for the September nonfarm payrolls report, scheduled for release on Friday, but there is a chance it could be delayed if a government shutdown goes into effect.

For now, investors are left without clarity on whether job growth is slowing or holding steady. Beth admitted this makes the balancing act even harder, as the Fed must weigh risks to jobs while dealing with inflation that has refused to budge.

Beth, who joined the Fed after a career at Goldman Sachs, is not a voting member of the Federal Open Market Committee this year, but her comments still matter. She has already said in past remarks that she would hesitate to support rate cuts while inflation is still hot. Her latest warning puts her firmly in the camp that favors caution.

Powell warns of two-sided risks

Government figures last week showed little progress in cooling inflation. The personal consumption expenditures price index rose 0.3% in August, bringing headline inflation to 2.7% year over year.

The core PCE, which excludes food and energy and is tracked more closely by the Fed, came in at 2.9% after a 0.2% monthly increase. These figures confirm Beth’s view that inflation remains sticky, particularly in services.

Federal Reserve Chair Jerome Powell echoed that concern in his own comments earlier this month. Speaking in Rhode Island on September 23, Powell said, “Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation.”

He added, “Two-sided risks mean that there is no risk-free path.” His statement underlined that the Fed cannot avoid trade-offs. Cutting rates too fast risks letting inflation climb again, while holding rates high risks hurting employment.

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