Two voting members of the Federal Reserve this year — the presidents of the Cleveland Fed and the Dallas Fed — have expressed their views, both leaning hawkish. They suggested that interest rates may remain unchanged for an extended period unless there are new and substantial signs of weakness in the U.S. labor market to avoid reigniting inflation.
On Tuesday local time, two voting members of the Federal Reserve this year made statements that were both hawkish. They suggested that interest rates might remain unchanged for an extended period unless there are new and substantial signs of weakness in the U.S. labor market, to avoid reigniting inflation.
Cleveland Fed President: Interest Rates May Remain Unchanged for an Extended Period
Cleveland Federal Reserve President Beth Hammack recently stated that interest rates might remain unchanged for an extended period as Fed officials assess the continuously released economic data.
Hammack said on Tuesday: "Rather than attempting to make fine-tuned adjustments to the federal funds rate, I prefer to exercise patience, observing how the economy performs while evaluating the impact of recent rate cuts. Based on my projections, we may remain on hold for a considerable period."
Hammack has repeatedly urged her colleagues on the Federal Open Market Committee (FOMC) to proceed cautiously with rate cuts to avoid reigniting inflation. She supported last month's decision to maintain interest rates unchanged after three consecutive rate cuts through late 2025.
Hammack shared a 'cautiously optimistic' outlook, stating that fiscal support, lower interest rates, and other factors would drive U.S. economic growth, thereby boosting the labor market. She expects inflation to moderate this year.
Hammack emphasized that if the economy underperforms expectations, Fed officials need to remain flexible in their policy responses; she also expressed openness to raising rates when necessary. "At present, the risks of the federal funds rate moving higher or lower are roughly balanced. History tells us that flexibility is beneficial."
Hammack also highlighted the importance of the Federal Reserve's independence, which allows officials to make tough policy decisions aimed at long-term economic stability:
In her speech, Hammack referenced the late Federal Reserve Chair Paul Volcker. Volcker successfully curbed high inflation by sharply raising interest rates, triggering a recession, after inflation spiraled out of control in the 1970s.
During the Q&A session following her speech, Hammack stated: "Maintaining this independence is crucial so that we can make those difficult trade-offs when necessary. Because sometimes, to sustain low inflation in the long term, we must endure short-term pain."
The president of the Federal Reserve Bank of Dallas supports maintaining interest rates unchanged.
Lorie Logan, president of the Federal Reserve Bank of Dallas, also stated on Tuesday that interest rates should remain unchanged unless there are new and substantial signs of weakness in the labor market. 'In the coming months, we will see whether inflation is moving toward our target and whether the labor market can remain stable.' Logan expressed optimism about a continued decline in inflation.
Logan said, 'If this is the case, it would indicate that our current policy stance is appropriate, and no further rate cuts would be needed to achieve our dual mandate goals. Conversely, if inflation declines while the labor market shows further and substantial cooling, then another rate cut may become appropriate.'
Logan stated that after three consecutive rate cuts at the end of 2025, she supported the FOMC’s decision to maintain interest rates unchanged at the January meeting this year. She had previously publicly opposed rate cuts in October and December, citing that inflation remained too high and the labor market was in equilibrium.
On Tuesday, Logan reiterated her position. She noted that the pace of hiring over the past six months has been close to the 'break-even' level estimated by her research team—the rate at which new job creation matches population growth—and admitted that she is 'not yet fully convinced that inflation is steadily returning to the 2% target.'
Before becoming president of the Federal Reserve Bank of Dallas, Logan managed the central bank's portfolio at the Federal Reserve Bank of New York. She also discussed recent measures related to the Fed’s balance sheet.
At the end of last year, as government borrowing increased alongside the Fed’s actions to reduce its bond holdings, volatility in funding markets intensified significantly, and cash reserves in the financial system were drained. To alleviate this pressure, the Fed shifted to expanding its balance sheet again, purchasing approximately $110 billion in Treasury bills since December 12.
Logan noted that this process is technical and unrelated to the stance of monetary policy itself, and should not be mechanically operated. She said, 'Reserve demand may change over time due to economic growth, changes in banking and payment operations, and adjustments in the regulatory and supervisory environment. To maintain efficiency, the scale of reserves we provide needs to be adjusted up or down in line with these changes.'
She added that if the Fed maintains an adequate level of reserves in the banking system, money market rates (such as the general collateral rate for tri-party repo transactions) should remain close to the interest rate on reserve balances over the long-term average.
Logan also reiterated her call for the Fed to facilitate centrally cleared transactions through the Standing Repo Facility, expressing appreciation for the high usage rate of the tool at the end of 2025, calling it 'an encouraging sign.'
A flurry of U.S. economic data releases is underway.
Fed officials have been encouraged by recent signs of easing inflation data and some stabilization in the unemployment rate, but new data due this week may test those assessments. The January employment data, delayed due to the most recent government shutdown, will be released on Wednesday, while the next Consumer Price Index (CPI) report is expected on Friday.
According to data released earlier Tuesday by the U.S. Department of Commerce, retail sales in December were weaker than expected, with declines in eight of the 13 categories.
U.S. President Trump has made it clear that he wants the next Federal Reserve Chair to lower interest rates. He stated this week that Kevin Warsh, his nominee to replace Powell as Fed Chair, is capable of achieving a 15% economic growth rate, highlighting the significant political pressure Warsh would face if confirmed.
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