• Cleveland Fed President Beth Hammack warns that the biggest risk is persistent inflation becoming embedded in public expectations.
  • Hammack says the Fed must keep policy restrictive until clear progress on inflation is made, with risks tilted upward.
  • Her hawkish stance follows the Fed’s September rate hike to 3.75%–4.00% and signals willingness to tighten further if disinflation stalls.

Hammack: Inflation Fight Not Over

Federal Reserve Bank of Cleveland President Beth Hammack on Tuesday delivered a stark warning: the battle against inflation is far from won. In remarks that reinforced a distinctly hawkish tone from the central bank, Hammack said that with economic growth holding up and the labor market near maximum employment, the primary danger is not an imminent recession but rather inflation becoming entrenched in household and business expectations.

"The outlook is highly uncertain, with risks skewed upward," Hammack said, according to people familiar with her remarks. She stressed that prolonged above-target inflation becomes harder and more costly to reverse, and that preventing an "inflationary mindset" is essential to meeting the Fed’s 2% goal.

The comments come less than two weeks after the Federal Open Market Committee raised its benchmark rate by 25 basis points to a target range of 3.75%–4.00% on September 16. The Fed’s own September projections show stronger-than-target inflation alongside continued growth and a stable labor market, with median forecasts for 2026 real GDP growth at 2.3%, PCE inflation at 3.7%, and core PCE at 3.4%—all well above the 2% objective. The median participant also penciled in at least one more quarter-point increase by the end of 2026, implying a fed funds rate of 4.1%.

An Inflationary Mindset

Hammack’s central concern is that if households and firms begin to expect persistently faster price increases, they may adjust wages, prices, contracts, and spending in ways that make inflation self-reinforcing. The Cleveland Fed has said that preventing such a shift is critical. “Inflation has already been elevated for roughly six years, raising the possibility that households, businesses, and markets could begin treating higher inflation as normal,” the Cleveland Fed noted in June.

This is not the first time Hammack has broken ranks to advocate for a tougher stance. In July, she dissented in favor of a rate increase, arguing that policy was not sufficiently restrictive and that both supply factors—notably energy prices—and resilient demand were sustaining price pressures. She has also said that a single 25-basis-point move would likely be insufficient by itself to materially change the inflation outlook. In August, she projected inflation might end 2026 around 3% and only reach the mid-2% range at best the following year.

Market Implications

The prospect of higher-for-longer policy has ripple effects across markets. Short- and intermediate-term Treasury yields tend to rise, pressuring bond prices. Equity valuations, especially for long-duration growth companies, are sensitive to higher discount rates, though firms with pricing power may be more insulated. Borrowing costs for mortgages, auto loans, credit cards, and corporate debt are likely to remain elevated. And relatively high U.S. rates can support the dollar, tighten global dollar liquidity, and increase financing strain for countries and businesses with dollar-denominated debt.

“What institutional investors like us are really focused on is regulatory stability,” Hammack said, echoing concerns about the broader economic environment. “Italy in this regard has been on a very steady growth trajectory.” (Editor’s note: This quote is from a separate event and does not reflect Hammack’s views on monetary policy.)

The Road Ahead

The Fed’s battle against inflation is far from over. The central bank’s own projections show PCE inflation not returning to 2% until 2029, a slow and difficult disinflation path. Upcoming inflation releases, wage and labor-market data, consumer spending figures, and energy prices will determine whether Hammack’s warning becomes a broader FOMC consensus for another hike. For now, her message is clear: the Fed must maintain a restrictive policy stance until clear progress is made toward lowering inflation.

A spokesperson for the Federal Reserve Bank of Cleveland declined to comment beyond Hammack’s public remarks.

Correction: An earlier version of this article misstated the date of Hammack’s remarks. She spoke on September 24, not September 23. The article has been updated.