Fed’s Hammack warns successive supply shocks risk entrenching inflation mindset
Cleveland Federal Reserve Bank President Beth Hammack stated the U.S. economy faces successive supply shocks from tariffs and oil prices, alongside demand-side shocks from an AI capital spending boom, raising the risk of an entrenched inflation mindset. Speaking at a Cleveland Fed conference, she said the inflation outlook remains highly uncertain with upside risks, and warned that prolonged high inflation makes it more costly to bring down.
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Fed's Hammack: Economy faces successive shocks, raising risk of entrenched inflation mindset
Cleveland Federal Reserve Bank President Beth Hammack stated that the U.S. economy is facing a series of supply shocks, increasing the risk of an entrenched inflation mindset. Speaking at a conference hosted by the Cleveland Fed on Thursday, Hammack said the inflation outlook remains highly uncertain with upside risks. She highlighted that monetary policy is grappling with recent successive shocks, including supply-side shocks from tariffs and oil prices, as well as demand-side shocks from an AI-related capital spending boom. Hammack noted that while traditional views suggest monetary policy should ignore supply shocks, the current environment of frequent shocks and persistently high inflation raises the risk of inflation expectations becoming fixed. She warned that the longer high inflation persists, the more difficult and costly it will be to bring it down. Hammack described U.S. economic output growth as 'solid' and said the labor market is near full employment.
Read sourceFed's Hammack says economy faces repeated shocks, raising risk of entrenched inflation mindset
Cleveland Federal Reserve Bank President Beth Hammack stated that the U.S. economy is confronting a series of supply shocks, which heightens the risk of inflation expectations becoming entrenched. Speaking at a conference hosted by the Cleveland Fed, Hammack noted that the inflation outlook remains highly uncertain with upside risks. She highlighted a particularly challenging issue for monetary policy: the recent succession of shocks, including supply-side shocks from tariffs and oil prices, as well as demand-side shocks from an AI-related capital expenditure boom. Hammack cautioned that while conventional wisdom suggests monetary policy should ignore supply shocks, the current environment—where the economy is more susceptible to shocks and inflation has already been high for years—increases the danger of inflation mindset entrenchment. She warned that the longer high inflation persists, the more difficult and costly it will be to bring it back down.
Read sourceFed's Hammack warns US economy faces supply shocks, raising risk of entrenched inflation mindset
Cleveland Federal Reserve Bank President Beth Hammack stated that the US economy is facing a series of supply shocks, increasing the risk of inflation expectations becoming entrenched. Speaking at a conference hosted by the Cleveland Fed, Hammack said the inflation outlook remains highly uncertain with upside risks. She identified a particularly challenging issue for monetary policy: the recent string of shocks, including supply-side shocks from tariffs and oil prices, as well as demand-side shocks from an AI-related capital expenditure boom. Hammack noted that while conventional wisdom suggests monetary policy should ignore supply shocks, the risk of inflation mindset entrenchment is higher when the economy is more vulnerable to shocks or when shocks arrive consecutively after years of high inflation. She warned that the longer high inflation persists, the more difficult and costly it becomes to bring it back down.
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Fed's Hammack warns economy faces repeated shocks, raising risk of entrenched inflation mindset
Cleveland Federal Reserve Bank President Beth Hammack stated that the U.S. economy is confronting a series of supply shocks, which heightens the risk of inflation expectations becoming entrenched. Speaking at a conference hosted by the Cleveland Fed, Hammack said the inflation outlook remains highly uncertain with upside risks. She identified a particularly challenging issue for monetary policy: the recent succession of shocks, including supply-side impacts from tariffs and oil prices, as well as demand-side pressures from an AI-related capital expenditure boom. Hammack noted that while conventional wisdom suggests monetary policy should ignore supply shocks, the current environment—where the economy is more vulnerable to shocks and inflation has already been elevated for years—makes the risk of inflation mindset hardening much higher. She warned that the longer high inflation persists, the more difficult and costly it will be to bring it back down.
Read sourceFed's Hammack Says Supply Shocks Pose Significant Challenge to Monetary Policy
Federal Reserve Bank of Cleveland President Beth Hammack stated that supply shocks currently present a significant challenge to the Federal Reserve's monetary policy. The remark, reported by financial news outlet Jin10, highlights a key difficulty facing the central bank as it navigates economic conditions influenced by disruptions in supply chains or production capacity. Hammack's comment underscores the complexity of setting interest rates and managing inflation when external factors beyond demand-side control, such as geopolitical events or natural disasters, impact the economy. The statement offers insight into the Fed's ongoing assessment of inflationary pressures and the appropriate policy response, suggesting that supply-side issues remain a central concern for policymakers.
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