The market currently expects the Federal Reserve to raise interest rates once in December and again in March next year.

Written by: Yang Chen, Wall Street Journal

Federal Reserve officials have released hawkish signals, advocating for more frequent small rate hikes to combat the persistently high price pressures.

Cleveland Fed President Beth Hammack stated on Thursday that monetary policy needs to shift to a restrictive stance to timely bring inflation back to the 2% target. She also noted that inflation has been above the target for nearly six years continuously, and price pressures have a broad basis, driven by both supply and demand factors.

Hammack was one of the two Fed officials who voted against the rate decision last week. After the Fed held rates steady, she reiterated her position at an event in Zurich, favoring "as frequent and smaller adjustments as possible," saying this strategy helps reduce the risk of policy lagging behind the situation and inflation expectations becoming deeply rooted.

At the same time, Richmond Fed President Tom Barkin gave a separate speech on Thursday, reaffirming support for a "gradual" rate hike pace, but declined to comment on where rates would ultimately settle. Several Fed officials who have spoken since the last meeting have also advocated for a moderate pace of tightening to limit the impact on financial markets and the real economy.

Futures market pricing shows that investors currently expect the Federal Reserve to raise interest rates once in December and again in March next year.

Hawkish Dissent: Hammack Advocates for Restrictive Rate Stance

Hammack was in the minority at the previous meeting. During last week's policy meeting, the Fed decided by majority vote to keep the benchmark interest rate unchanged, with Hammack and another official voting against, insisting that the current inflation situation demands a more tightening policy orientation.

She reiterated on Thursday that inflation has remained above target for nearly six years, and price pressures are broad-based, not limited to a specific area or factor.

She indicated that recurring supply shocks would increase the risk of firms and consumers forming inflation expectations, and once inflation thinking becomes solidified, the difficulty for the central bank to achieve its price stability target would significantly increase.

Regarding the pace of rate hikes, Hammack expressed a preference for a small-step quick-walk strategy, believing that more frequent small rate hikes could keep policy closer to economic reality, avoiding a situation where actions merely respond to conditions.

In terms of meeting arrangements, Fed Chair Powell announced last week plans to adjust the annual meeting schedule before 2028, reducing formal rate decision meetings from eight to six per year, leaving two additional meetings specifically for discussing the macroeconomic policy framework. Both Hammack and Barkin were indifferent to this change. "From eight to six, this is quite a moderate shift," Hammack said.

Signs of Moderate Strength in the Labor Market

On employment, Hammack’s assessment is relatively optimistic, believing that the U.S. labor market, which has been stuck in a low hiring and low firing situation, may be showing signs of marginal improvement.

This statement indicates that the resilience on the job front provides additional support for the Fed to maintain a restrictive rate stance, with limited space for rate cuts in the short term.

Central Bank Independence Directly Linked to Dollar Status

Hammack also expressed her views on the dominance of the dollar and central bank independence in her speech, linking the two directly. She stated that the dollar's dominant position relies on the U.S. sound rule of law, the availability of dollar assets in deep and liquid markets, and the independent operation of the central bank.

She emphasized that the Fed has established institutional credibility based on evidence and economic data, rather than short-term political pressure, in formulating monetary policy. "This credibility helps us achieve our goals, including low and stable inflation, while supporting the dollar's status."

Hammack made these statements just two days after the results of the U.S. midterm elections were announced. In these elections, the Democratic Party gained control of both chambers of Congress, and it is believed that this outcome may mitigate Trump’s ability to pressure the Fed's rate decisions to a certain extent.

Path of Stablecoin Expansion: AI May Be a Key Variable

Hammack also made a rare statement on the trend of digital assets, listing the rise of artificial intelligence as a potential catalyst for the widespread adoption of stablecoins.

She noted that the use of stablecoins is still limited, but if tech giants like Google and Amazon, which have large existing user networks, launch their own tokens, the market scale could expand rapidly. At the same time, autonomous AI systems could also significantly boost the usage of stablecoins.

"If more and more AI agents need to conduct buy and sell transactions and they start using stablecoins or other digital assets instead of processing funds through credit cards or traditional payment channels, this could constitute a substantial shift," she said. "We haven’t seen these application scenarios yet, but we are closely watching."