Beth Hammack of the Federal Reserve Bank of Cleveland says a restrictive stance is appropriate

Beth Hammack said on Monday that a restrictive stance is appropriate if inflation is to get back to 2% without a long delay. Restrictive means rates high enough to restrain spending and bring inflation down.

"When feasible, I generally think it's preferable to make smaller adjustments, and to do so relatively quickly, rather than to wait and risk needing a larger course correction," the president and chief executive officer of the Federal Reserve Bank of Cleveland said. The remarks were prepared for the National Association for Business Economics' annual meeting in Cleveland.

Price pressures beyond energy

Hammack said she sees price pressures as relatively broad-based, not concentrated in one component. Energy has made headlines this year, she said, with oil, retail gasoline and diesel all higher, "but it isn't the whole story."

Her staff's research puts underlying inflation, the pace once volatile prices are set aside, in the mid-to-high 2% range, she said, and her baseline is that a return to 2% will take time even with appropriate policy.

Demand from the buildout of artificial intelligence is lifting prices for computer, electronic and high-tech components, she said, and those costs are showing up in data centers and in aviation, electricity and construction projects that use the same parts. In conversations in the Cleveland Fed's district, firms were planning to raise prices faster than their own input costs.

Current data does not describe "an economy in which the crew are exhausted and the boat is taking on water," she said. "It reads, instead, as one that can handle a tighter hand on the tiller to finish the job on inflation."

"With each passing month, persistently elevated inflation raises the risks of an inflationary mindset becoming entrenched in the economy," she said.

Long-run expectations of inflation have stayed "remarkably well anchored," she added, even though inflation has run above target for more than five years. "But I'm not taking that for granted."

Well anchored means households and businesses still expect inflation to come back to 2%.

A voter who already wanted higher rates

Hammack votes on the Federal Open Market Committee this year, in a seat that rotates among the regional Reserve Bank presidents.

In July she dissented because she preferred a quarter-point increase. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, and Lorie Logan, president of the Federal Reserve Bank of Dallas, dissented with her. The committee held steady then.

On September 16 it raised the target range for the federal funds rate by a quarter of a percentage point, to 3.75% to 4%, by a 12-to-0 vote. She was among those voting for it.

The minutes of that meeting, released on October 7, said most participants, voters and non-voters alike, assessed that another increase would likely be appropriate by year-end. They also said they would approach each meeting with an open mind, and that later decisions would depend on incoming information and the balance of risks.

Almost all of them judged inflation risks tilted to the upside, weighted toward inflation staying too high.

The calendar ahead

CNBC reported on Monday, citing CME FedWatch, that traders priced a more than 78% likelihood of no change at the October 27-28 meeting, and a nearly 88% chance of an increase at the December 8-9 meeting.

The next inflation reading lands before either meeting. The Bureau of Labor Statistics is scheduled to publish the September consumer price index on Wednesday at 8:30 a.m. Eastern time.

The committee meets on October 27 and 28, with its decision due at 2 p.m. on October 28, and again on December 8 and 9.