Federal Reserve backs gradual rate increases as inflation stays above target

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Fed backs gradual rate increases

Highlights

Hammack advocates for gradual, frequent rate increases to contain inflation, following the Fed's decision to keep rates at 3.75%–4.00% despite persistent price pressures.
Hammack dissented in recent Fed votes, arguing existing monetary policy is not restrictive enough to meaningfully restrain the economy and slow inflation.
Hammack emphasizes central bank independence and the legal system as foundations for the dollar's continued dominance as global reserve currency, dismissing crypto as a current threat.

Zurich speech outlines tightening preference

As reported by Reuters, Hammack says in prepared remarks for an event in Zurich that the U.S. central bank still has more work to do to bring inflation back to target. She says monetary policy needs to move to a restrictive stance in a timely manner, while favoring more frequent smaller adjustments when possible to limit disruption for households, businesses and financial markets.

Hammack does not specify when she wants the next rate increase, but says gradual moves would also lower the risk that policy falls behind and allows an inflationary mindset to take hold. Her position follows the Fed's decision last week to keep its benchmark rate in the 3.75% to 4.00% range, even as officials acknowledge inflation remains too high.

She is among policymakers pushing for tighter settings, having dissented with Fed Governor Lisa Cook in favor of a rate increase last week. Hammack also dissents in late July when rates are left unchanged, arguing that monetary policy and broader financial conditions are not yet providing enough restraint to slow the economy and curb inflation.

Dollar role and policy independence remain central

Hammack also uses the speech to argue that central bank independence is essential to maintaining stable inflation and preserving institutional credibility. She says the Fed has earned credibility by operating on evidence and economic data rather than political pressure.

Much of her remarks focus on the dollar's global position. Hammack says the dollar remains the world's reserve currency by a wide margin because of the strength of U.S. institutions and the country's legal system, and adds that preserving those foundations, including an independent central bank, is critical to sustaining that status.

She says she does not foresee the dollar losing its international role any time soon, even if its share of global reserves may have peaked. Hammack also says cryptocurrencies do not appear positioned to displace the greenback, arguing that their price volatility makes them a less reliable store of value than the dollar.

Our earlier article covered the internal Fed debate over how openly policymakers should communicate ahead of the next rate decision, as officials weighed the case for fewer public signals versus the need for clarity and credibility. It noted that frequent remarks from Fed speakers helped recalibrate market expectations after a hotter inflation print, underscoring how communication can move pricing for an October hike and influence volatility.

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