Cleveland Fed President Beth Hammack warned that inflation above the 2% target for more than five years could make Americans see high prices as normal. She said policy should be restrictive enough to return inflation to target but did not specify a rate move.
The personal consumption expenditures price index rose 3.7% year over year in July, compared with the Fed’s 2% goal. Earlier this month, the Fed raised its target rate range by a quarter percentage point to 3.75%-4%. Officials projected one more increase by year-end, while market participants expected more.
Hammack said inflation also reflects robust demand amid a strong economy and stable job market, not only trade tariffs and energy effects from the Iran war. She said inflation expectations appear in check, but worries that a generation raised without sustained inflation at target could change household and business behavior. She also said interest rates are not a factor for most businesses outside housing, which continue to invest.
