Interest Rate Could Go Up, Fed Official Says

A top Federal Reserve official said Monday that an interest rate hike could be appropriate if inflation remains above the central bank's 2% target, the latest sign that some policymakers are moving away from a bias toward reducing borrowing costs. Beth Hammack, president of the Federal Reserve Bank of Cleveland, said in an interview with the AP that her general preference is for the Fed to keep its benchmark interest rate unchanged for awhile. "I can foresee scenarios where we would need to reduce rates ... if the labor market deteriorates significantly," Hammack said. "Or I could see where we might need to raise rates if inflation stays persistently above our target."

The Fed might have to cut its rate if higher gas prices caused the economy to slow and unemployment to rise, she said; but if inflation remained elevated, a rate hike could be needed. Hammack's comments suggest a growing concern among at least some policymakers that inflation, which was elevated before the Iran war, may require rate hikes to counter it. Rate increases by the Fed would be a sharp shift from late last year, when the central bank cut its key rate three times. Other Fed officials have recently opened the door to rate hikes, including Austan Goolsbee, president of the Chicago Fed. Minutes of the Fed's meeting in late January said that several members of the rate-setting committee supported altering the post-meeting statement to reflect the possibility of "upward adjustments" to rates.

President Trump has harshly criticized the Fed for not cutting rates further. He has called for the central bank's key rate to be lowered to 1%, down from its current level of about 3.6%. Gas prices averaged $4.12 a gallon nationwide Monday, according to AAA, up 80 cents from a month earlier. Hammack said that the Cleveland Fed's estimates show inflation could reach 3.5% in April, which would be the highest point since 2024. Inflation spiked to 9.1% in June 2022 before slowly declining. "Inflation has been running above our target for more than five years now," Hammack said, and a further increase would mean it is "moving in the wrong direction, away from our 2% objective." The Federal Reserve is required by Congress to seek low inflation and maximum employment.