The lone dissenter to the Federal Reserve’s rate cut this week said she voted against the move because “there is more work to do on inflation,” noting that she preferred to pause given the strength of the US economy.
“Based on my estimate that monetary policy is not far from a neutral stance, I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2 percent objective,” said Beth Hammack, the president of the Cleveland Fed, in a new statement Friday.
Hammack said her decision was a “close call” but that she believes “monetary policy will need to remain modestly restrictive for some time.”
Hammack’s dissent was the second since the Fed began its rate cutting cycle in September. The first was Fed governor Michelle Bowman, who voted in support of this week’s 25 basis point cut.
Fed officials this week did also scale back the number of cuts they expect to see in 2025 to 2 from 4 due largely to concerns about the persistence of inflation.
New inflation data out Friday showed price increases fell month over month in November but still remained sticky as the central bank fights to bring inflation back down to its 2% target.
In November, the core Personal Consumption Expenditures (PCE) index, which strips out food and energy costs and is closely tracked by the Fed, rose 0.1% from the prior month, a deceleration from October’s 0.3% monthly gain in prices. The monthly increase came in slightly lower compared to economist expectations of a 0.2% increase.
Over the prior year, core prices rose 2.8%, matching the increase seen in October and also lower than Wall Street’s expectations of a 2.9% rise. On a yearly basis, overall PCE increased 2.4%, a pickup from the 2.3% seen in October. Economists polled by Bloomberg had anticipated a yearly increase of 2.5%.
Hammock said monetary policy has played an important role in bringing PCE inflation down considerably from its peak of 7.2 percent in the summer of 2022.
But “despite these positive developments, inflation remains elevated, and recent progress in returning inflation to 2 percent has been uneven.”
Because the job market remains healthy, she wants the Fed to focus on getting inflation back down to 2%.
“It is important to maintain the focus on returning inflation to 2 percent in a timely fashion,” she said.
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