Cleveland Fed President Beth Hammack sat down with Bloomberg's Michael McKee for an exclusive interview to discuss the two-sided risks with rates, as well as the latest jobs numbers being a disappointment despite a "stabilizing" labor market.
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5:13... looking at this whole system of the balance sheet and everything that's developed over the years since that you went to interest on reserves, would it be very, very hard to change again given the infrastructure that's arisen around this?
6:44We were told for a long time by all kinds of Fed officials that companies are saying we're sitting on our hands because we're waiting to see what's going to happen. Has that changed at all?
7:34If they are considering raising prices, are we going to see more of that?
8:50But do you worry that this could lead us to something like stagflation?
We'd like to welcome Beth Hammack to Bloomberg Television and Radio Worldwide. You just finished a panel. You made an address basically suggesting that risks are two-sided. Now, you've been on the side of inflation being the biggest concern, but then we got this jobs report today that sort of makes the case for some of the doves on the committee. What did you make of it?
Well, I try not to make too much of any one individual number and certainly this number was a disappointment mostly because it means that there are more Americans who aren't working. That's what disappointed me in this report. We've seen the economy overall has been pretty healthy. It's been brightening. The outlook has been positive. When I'm out in the district talking with businesses, I hear them talking about their optimism and that they're looking to make more investments in their businesses and they think demand is going to be reasonably robust. But we've had a labor market that I would characterize as stabilizing. You know, it's been in that 4.3, 4.4 range from an unemployment rate perspective. Obviously, the headline jobs number has been the piece that's been a little bit weaker. When I talked to you last, it was August, which was the first of those reports where we saw more softening in the labor market. But it does look like it's been stabilizing and I think part of that is due to the accommodation that we put into the economy towards the end of last year. And now we have a lot of tailwinds I think looking ahead in terms of the economy and in terms of growth. On the other side of our mandate, inflation has been above our target for five years. We've made virtually no progress over the past two years. We're still right around 3% on inflation. And so we need to make sure that we're maintaining a balance of policy that's going to help bring inflation back down to target while still supporting the labor market. So when I look at things broadly, to me it seems like there are two-sided risks to rates.
Well, there is a question on Wall Street that came out in the last minutes where it was suggested that some members of the open market committee wanted to put the two-sided risks into the statement. At this point, is monetary policy tight enough to address the inflation side?
That's a great question. I think we're right around neutral. You know, there are a lot of different estimates of what that neutral rate is. To me, when I see the economy continuing to perform reasonably well, I take confidence that we're probably not being overly restrictive. When I talk to business leaders, they're still willing to make investments. They're taking out loans. The banks that I've talked to in the district see that their loan growth is improving. And so all of that says to me that we are around that neutral level and that we should stay at least around neutral to help make sure we're putting the right amount of pressure in bringing inflation back down to target.
So we basically can look at the next meeting as kind of a wash. It's too early to make any decisions based on what's going on with the war. And as far as you're concerned, you don't need any more accommodation right now.
Yeah, I'm just one person. But as I see it, I think we could be on hold for quite some time. But as a voter, an important person, we're not going to differentiate.
So, one of the things that's going to happen over the next few months is a new chair is going to come in. A lot of people talking about Kevin Warsh is going to lower interest rates, but one guy can't do it himself. It's, as you say, 19 people on the committee. So, how do you think that plays out with a new chair, you know, who's not Jay Powell anymore?
Well, I mean there's been transitions in the chair of the committee since the body was founded in 1913 and so there have been a number of evolutions and I think you saw the transition from Greenspan to Bernanke to Yellen to Powell and I think this will be another transition and the committee will adapt and I'm excited to work with the new chair. I think that whoever walks into that role, the chair seat is a particularly influential seat. They historically have tried to bring the committee together, get a perspective on where people are, and I have every confidence that Kevin, if he assumes the job, is going to do his absolute best for the American public like all the rest of the 18 of us do around that table.
Well, he's wanted to make some changes, and one of them is a smaller balance sheet. This is kind of your area going back to your days at Goldman Sachs. What do you think of that idea?
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