Cleveland Federal Reserve President Beth Hammack called for a faster shift to a restrictive monetary policy stance on Monday, warning that inflation has become more broad‑based and is beginning to affect firms’ price‑setting decisions.

Broad‑based price pressures

Speaking at a National Association for Business Economics conference, Hammack said she sees inflation pressures spreading beyond the energy sector, which has dominated headlines with higher oil, gasoline and diesel prices. “I see inflation pressures as relatively broad‑based rather than concentrated in one component,” she said.

She noted recent conversations with businesses in the Cleveland district that plan to raise prices faster than their input costs are climbing.

Why a quicker, smaller adjustment matters

Hammack argued that a “restrictive monetary policy stance is appropriate to ensure a timely return to 2% inflation.” She added that, when feasible, it is preferable to make smaller adjustments “relatively quickly” rather than waiting and risking a larger correction later if inflation proves more persistent or expectations rise.

Her staff’s research puts underlying inflation in the mid‑to‑high 2% range, and she cautioned that even with appropriate policy, returning to the 2% target will take time.

New demand‑side pressures

The Fed president highlighted emerging demand‑side pressures from the AI build‑out, which are raising prices for key computer, electronic and high‑tech components. Those cost increases affect data centers as well as projects in aviation, electricity production and construction.

“This is raising costs for data centers, yes, but also for projects that use similar components in aviation, electricity production, and construction,” Hammack said.

Economic outlook and policy communication

Current data, according to Hammock, do not suggest an economy that is “exhausted” or a “boat taking on water.” Instead, she sees an economy capable of handling a tighter hand on the tiller to finish the job on inflation.

Investors expect the Fed to keep its policy rate in the 3.75%‑4.00% range at the upcoming October 27‑28 meeting. Hammack, a voting member of the Federal Open Market Committee, has been among the more hawkish voices, dissenting in favor of a rate hike at the July meeting and joining Chairman Kevin Warsh in supporting a September increase.

Transparency and public guidance

Hammack also stressed the importance of policymakers explaining their views and likely reactions to new data. While Warsh prefers a “quieter” Fed and opposes firm forward guidance, Hammack believes providing a “reaction function” helps households and firms understand how policymakers process data and plan accordingly.

“I have a responsibility to the public to explain why I make the decisions I make. Transparency has the benefit of allowing consumers, businesses, and financial markets to make better‑informed decisions,” she said.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.