Federal Reserve Bank of Cleveland President Beth Hammack told CNBC on Wednesday that current interest rates are appropriately set and that her baseline outlook is for the central bank to maintain its policy stance for an extended stretch.
"I think that rates are in a good place," Hammack said. "My baseline is that we're going to remain on hold for a good while, but I do think that there's two-sided risk to rates."
She added that future changes to policy will hinge on incoming economic readings. "There's risk that we might need to be more accommodative or more restrictive, depending on how the data comes out," Hammack said, emphasizing that new information could push the Fed in either direction.
Energy costs drew particular attention in Hammack's comments. She described high energy prices as a factor that could both accelerate inflation and depress growth, noting that the economic effect will depend on how long elevated energy prices persist and how large the price moves are.
On the labor market, Hammack judged conditions to be roughly balanced. She said the job market does not presently appear to be a source of upward inflationary pressure. At the same time, she pointed to the persistence of inflation over recent years, observing that inflation expectations look reasonably contained while acknowledging that the Fed has missed its inflation target for five years and that consumers have endured a prolonged period of higher inflation.
Describing the current environment as difficult for monetary decision-making, Hammack warned that supply shocks complicate the policy response. "Supply shocks are tricky for monetary policy," she said, portraying the present circumstances as a tough time for the Fed to set a clear path.
Hammack also touched on other broader uncertainties facing the economy. She said it remains unclear what impact artificial intelligence will have on economic activity, and she underscored the importance of central bank independence. She noted that she is focused on performing her duties amid threats to the central bank.
Bottom line: Hammack's remarks underline a tentative policy pause predicated on current data, while singling out energy prices, incoming economic reports and supply shocks as the main variables that could force a change in stance.