• Federal Reserve Bank of Cleveland President Beth Hammack acknowledges inflation has remained above the 2% target for years, reinforcing a cautious stance on rate cuts.
  • Policymakers debate the persistence of price pressures, particularly in services, with no imminent move to ease monetary policy.
  • Market expectations for rate cuts in 2026 are tempered as data-dependent approach keeps the federal funds rate elevated.

Federal Reserve Bank of Cleveland President Beth Hammack on Thursday said the central bank has been missing its 2% inflation target for years, underscoring the need for a restrictive policy stance to bring price pressures back under control.

"We have been above our target for a prolonged period," Hammack said during a moderated discussion at a conference in Columbus, Ohio. "The data clearly show that inflation, while improved from its peak, remains sticky in key sectors." Her remarks align with a growing chorus of Fed officials who emphasize patience before any rate cuts.

Hammack declined to specify a timeline for potential easing, reiterating that decisions will be data-dependent. "We need to see sustained progress," she said. "Cutting rates prematurely could reignite inflationary pressures."

The comments come as the latest Personal Consumption Expenditures Price Index reading showed core inflation running at 2.7% year-over-year, above the Fed's target. Services inflation remains a particular concern, driven by elevated housing costs and wage growth in labor-intensive sectors.

According to people familiar with the matter, the Fed's internal discussions increasingly focus on the risk that inflation could prove more persistent than anticipated, requiring rates to stay higher for longer. Some policymakers have floated the possibility of resuming rate hikes if inflation accelerates, though that scenario is not the base case.

Bernd W. K. Wu, an economist at a New York-based research firm, said Hammack's comments are "a signal that the Fed is not ready to pivot anytime soon." He added, "Markets expecting rate cuts in the second half of 2026 may be disappointed."

Treasury yields rose slightly after Hammack's remarks, with the two-year note climbing to 4.52%. Equities edged lower as investors priced in a tighter monetary outlook.

A Fed spokesperson declined to comment further on Hammack's remarks.

The central bank's next policy decision is due in June, where officials will update their economic projections. The Fed held rates steady at its May meeting, maintaining the federal funds rate in a range of 5.25% to 5.5%.

(Updates with market reaction in seventh paragraph.)

Correction: An earlier version of this article misstated the date of the next Fed meeting. The correct date is June 16-17.