Cleveland Fed President Harmark stated that it is appropriate to maintain stable interest rates for "a period of time" while waiting for inflation to decline further and analyzing the impact of new government policies on the economy.

Harmark noted in a prepared speech on Tuesday: "We have made good progress, but the 2% inflation target has yet to be achieved. As long as the labor market remains healthy, I need broad evidence that inflation can sustainably return to 2% before further adjusting policy."

Harmark outlined two key factors supporting a patient monetary policy. She pointed to the ongoing upward risks of inflation, including strong consumer spending and the possibly lagged effect of last year's interest rate cuts on economic activity.

The Cleveland Fed President also emphasized the uncertainty surrounding new government policies, such as those related to regulation, taxation, immigration, and tariffs. She stated that it would take "some time" to analyze these policies and determine the appropriate monetary policy response.

Harmark said, "Take tariffs as an example; it is appropriate to be patient in assessing their ultimate impact. Given the historical context of recent high inflation, the risks to the inflation outlook seem to be skewed to the upside, which could delay its return to the target of 2% and further increase the risk of embedding high inflation in the economy."

President Trump of the USA ordered a 25% tariff on imports of Steel and Aluminum on Monday.

She reiterated that the monetary policy is only moderately restrictive and added that interest rates "may already be at or near neutral levels." The neutral rate refers to an interest rate level that neither stimulates nor suppresses economic activity.

Federal Reserve officials maintained interest rates at last month's meeting, after the central bank had implemented a total of 100 basis points in rate cuts by the end of 2024. Hamark had opposed the Federal Reserve's decision to consecutively lower borrowing costs for the third time last December, preferring to keep rates unchanged until there is more evidence that inflation is moving towards the Federal Reserve's 2% target.

In her latest speech, Hamark pointed out that she will closely monitor inflation data at the beginning of the year to see whether employers will significantly raise prices like they did last year. The highly anticipated latest CPI data will be released on Wednesday.

Hamark's remarks were made before Federal Reserve Chairman Powell begins his semi-annual testimony to Congress. Powell is scheduled to attend a Senate Banking Committee hearing in Washington at 11 PM Beijing time, where he is expected to answer questions about inflation, banking regulation, and more.

Editor/ping