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Long before the United States and Israel attacked Iran and energy prices soared, Beth M. Hammack, president of the Federal Reserve Bank of Cleveland, harbored concerns about inflation.
For roughly five years, the Fed has exceeded its 2 percent target for annual inflation. In the past 12 months, it has made little progress in closing the gap as President Trump’s sweeping tariffs reshuffled global trade.
And the labor market, once shaky, has shown signs of stabilizing, fortifying Ms. Hammack’s view that the Fed need not rush to lower rates again after three quarter-point reductions last year.
The escalating conflict in the Middle East represents a new inflationary risk that Ms. Hammack is watching closely, she said in an interview. Higher energy prices could translate to a more persistent inflation problem for the Fed, but at the same time dent consumer demand, although it is far too early to know what the overall economic impact will be, she said.
The Fed, which is widely expected to hold rates steady at its next meeting on March 17-18, has typically avoided responding to supply shocks for this reason. Raising rates to choke off a potentially temporary burst of inflation could lead the Fed to cause unintended economic damage. Even in the midst of acute supply disruptions caused by Mr. Trump’s tariffs, the central bank lowered rates three times in the latter half of last year to a range of 3.5 to 3.75 percent.
Ms. Hammack, who is a voting member of the Fed’s rate-setting committee this year, was skeptical of those cuts at the time, and she appears even more hesitant now to provide further relief to borrowers, suggesting she will remain a vocal detractor if aggressive reductions are pursued this year by Kevin M. Warsh, Mr. Trump’s pick tolead the central bank.
