US Market: Fed's Hammack warns against inflation becoming entrenched in economy

Reuters Synopsis Federal Reserve Bank of Cleveland President Beth Hammack warned that persistently high inflation could entrench elevated price expectations among US households and businesses.

She said monetary policy may not yet be sufficiently restrictive, citing resilient demand, strong business investment and a stable labour market.

Hammack also noted that rising US bond yields reflect higher real interest rates and a solid economic outlook.

By Anupam Nagar, ETMarkets.com Sep 28, 2026, 03:50:00 PM IST Follow us Federal Reserve Bank of Cleveland President Beth Hammack warned that persistently high inflation could lead Americans to become accustomed to elevated prices, increasing the risk of inflationary expectations becoming more deeply entrenched in the economy, Reuters reported.ADVERTISEMENT Hammack said the Federal Reserve must ensure monetary policy remains restrictive enough to bring inflation back towards its 2% target.

However, she stopped short of specifying what action she believes the central bank should take on interest rates during her latest appearance.

The personal consumption expenditures (PCE) price index rose 3.7% in July from a year earlier, while underlying inflation also remained above the central bank’s goal.

The Fed raised its benchmark interest-rate target by a quarter percentage point earlier this month, taking it to a range of 3.75% to 4%.

Policymakers have indicated that another increase could come before the end of the year, although financial markets have been pricing in further tightening.Demand adding to inflation pressureADVERTISEMENT Hammack said inflationary pressures were not solely the result of temporary shocks, such as tariffs and higher energy costs linked to the war involving Iran.

Companies continue to invest despite higher borrowing costs, reflecting the strength of economic activity.However, Hammack cautioned that continued investment and robust demand could add to inflationary pressures, which policymakers need to monitor and address through monetary policy.ADVERTISEMENT

Higher bond yields also reflected a solid economic outlook, increased competition for investment capital amid strong technology-sector spending, and changes in investor expectations about the future path of monetary policy, Reuters reported.The comments underscore the challenge facing the Fed as it seeks to balance persistent inflation against an economy that continues to show resilience.