Fed's Beth Hammack and Thomas Barkin favour gradual rate hikes as inflation stays high

Federal Reserve officials Beth Hammack and Thomas Barkin have expressed support for a gradual approach to interest rate hikes to combat high inflation, despite uncertainties surrounding the economic outlook, according to Reuters. This sentiment comes amid competing pressures of persistent price increases, geopolitical tensions, and substantial investments in artificial intelligence (AI).

Hammack, a consistent advocate for higher borrowing costs, argues that smaller and more frequent adjustments would be less disruptive to households, businesses, and financial markets. She also believes that gradual increases could prevent an "inflationary mindset" from taking hold. Richmond Fed President Thomas Barkin concurred, stating that inflation remains "too high" and is not showing signs of easing.

The Fed's decision to keep its benchmark interest rate in the 3.75%-4.00% range last week further highlights the division among policymakers over the appropriate pace of rate hikes. Financial markets anticipate another increase in December, though expectations beyond that remain uncertain. The political shift following Democrats' victory in Congress and gains in state elections may also impact the inflation outlook, as local opposition to data centers and permitting challenges could slow AI infrastructure spending, potentially easing demand and supply imbalances.