(Bloomberg) -- Federal Reserve Bank of Cleveland President Beth Hammack said policymakers are “at or near” the point where the central bank should slow the pace of interest-rate reductions, citing a strong economy and still-elevated inflation.
In her most substantive policy remarks since she joined the Fed in August, Hammack said she agreed with market expectations of one more rate cut between now and the end of January, along with a “few cumulative reductions” by the end of next year. However, she emphasized future decisions will be based on incoming data.
Hammack, who votes on policy decisions this year, also said rates may be close to a neutral level — where they are neither slowing nor stimulating the economy — adding that they should remain “modestly restrictive” for some time.
“To balance the need to maintain a modestly restrictive stance for monetary policy with the possibility that policy may not be far from neutral, I believe we are at or near the point where it makes sense to slow the pace of rate reductions,” Hammack said Friday in remarks prepared for an event hosted by the City Club of Cleveland.
“Moving slowly will allow us to calibrate policy to the appropriately restrictive level over time given the underlying strength in the economy,” she said.
Hammack said inflation, economic growth, and the labor market have all been stronger in recent months than she anticipated, a situation that “calls for a slower pace of rate cuts relative to my September forecast.”
Fed officials have lowered interest rates by three quarters of a percentage point since September. Policymakers will need to decide whether to lower borrowing costs for a third straight meeting when they gather on Dec. 17-18. Several officials, including Chair Jerome Powell, have said they support a more cautious approach to rate cuts.
Labor Market
Speaking in a question and answer session following her speech, Hammack said it could take time for sticky housing inflation to come down. She also said bringing inflation down to 2% was a top priority and that the labor market is “pretty healthy.”
“I’m really focused on making sure we get inflation under control, back to our 2% target, rather than preemptively over easing for some potential weakness in labor that we just haven’t seen yet,” said Hammack.
Fresh labor market data released earlier on Friday showed that hiring rebounded in November after being affected by storms and strikes in October, but the unemployment rate ticked higher to 4.2%. Traders see a nearly 90% chance policymakers will lower rates this month in the wake of the data, according to futures markets.
The Cleveland Fed chief described policy as “somewhat restrictive.” But Hammack said it is difficult to know exactly how restrictive interest rates are at the moment, given the possibility that the so-called neutral rate may have risen.
“We may not be too far from a neutral setting today,” she said.
(Updates with additional comments from Hammack.)
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