Hammack sees inflation risks skewed upward

Federal Reserve official Beth Hammack made several remarks that have been released.

• Central banks bear the responsibility for price stability.
• Inflation continues to run high even as demand for output remains strong.
• The risk to inflation is skewed to the upside.
• Supply shocks currently present a significant challenge for Federal Reserve policy.
• The persistence of high inflation makes it increasingly difficult to return it to the target level.

These remarks illustrate why Hammack is considered a hawkish policymaker. She perceives inflation risks as rising despite sustained demand. Supply disruptions compound the difficulty: while the Fed cannot resolve a supply shock directly, it must prevent the associated price increases from becoming entrenched.

For market participants, the takeaway is that Hammack is concerned about the danger of keeping inflation high for an extended period. Her comments reinforce a prudent policy stance, although she stops short of advocating for an additional rate increase in the statements that were reported.

The probability of a rate hike by the Fed in October is approximately 66%. Yesterday that figure climbed to roughly 74%, according to my perspective. It stood at 50% earlier this week.