Federal Reserve Bank of Cleveland president Beth Hammack recently reaffirmed her position that higher interest rates are necessary to curb investments in artificial intelligence (AI).
“My expectations are that we need to move to a restrictive stance of policy to help bring inflation back down to that 2% objective, which is critically important,” Hammack said on Thursday during an event in Columbus, Ohio. “If we don’t, I worry that an inflationary mindset could start taking hold.”
Hammack noted that the central bank is prepared to address the demand pressures resulting from the expansion of data centers. “When I look at that balance, what I’m seeing is inflation that’s been sticky. It’s been more persistent than I would like it to be,” she said.
Core inflation, which strips out volatile food and energy costs, climbed higher than anticipated in October. Hammack remarked that the latest data indicates progress in cooling inflation has “really stalled.”
“The most recent data that I’ve seen show inflation is moving in the wrong direction. We’re moving away from that 2% goal, rather than back down towards it,” she said.
Hammack was one of two officials who dissented against the majority’s decision to maintain interest rates within the 3.75-4% range last month, as she had advocated for a quarter-point hike.
Smaller increments
The Cleveland Fed leader has been a proponent of implementing more frequent, smaller adjustments to the benchmark target range.
“My view is that if we go steadily in smaller increments, more frequent, smaller rises, it’s easier for businesses and households to manage around that,” said Hammack. “It’s less disruptive to the overall economy than moving in sharper, more aggressive movements.”
Policymakers remain divided on the ideal pace for rate hikes. While some officials support a gradual strategy, governor Christopher Waller cautioned this week that the Fed might need to weigh a half-point increase when they meet in December.
Hammack mentioned that officials could contemplate more aggressive action if they find themselves behind the curve, though she does not believe that is currently the case.
“I don’t think we’re behind the curve today, but if we get behind the curve, then that might be something that we need to consider,” she said. “I’ll certainly have an open mind walking into that December meeting.”
