'AI investment expansion also a price driver; returning inflation to 2% will take time'

Beth Hammack, president of the Federal Reserve Bank of Cleveland, speaks at an Economic Club of New York event in New York in November last year. [Reuters]
Beth Hammack, president of the Federal Reserve Bank of Cleveland, speaks at an Economic Club of New York event in New York in November last year. [Reuters]

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said Monday that making "small, frequent adjustments" to interest rates — rather than large, sweeping moves all at once — helps prevent inflation expectations from becoming entrenched.

Speaking at the annual conference of the National Association for Business Economics in Cleveland, Ohio, Hammack said inflationary pressures are "appearing relatively broadly rather than being concentrated in specific sectors." She added that she believes it is "more desirable to make relatively quick, small adjustments rather than risk delaying policy changes and then needing a much larger course correction."

Hammack also expressed concern about inflation pressures building outside of energy prices. While rising crude oil, gasoline and diesel prices this year have drawn attention, "that is not the whole story," she said, noting that businesses in her district plan to raise their selling prices by more than their input cost increases.

She said surging demand tied to the expansion of AI infrastructure is pushing up prices for computers, electronics and advanced technology components, raising cost burdens not only for data centers but also for the aviation, power generation and construction sectors.

Hammack said researchers at the Cleveland Fed estimate that the underlying US inflation rate currently stands in the mid-to-upper 2 percent range. "Even with appropriate monetary policy, it will take time for inflation to return to 2 percent," she said, adding that "a restrictive monetary policy stance is appropriate to bring inflation back to 2 percent in a timely manner."

She stopped short of saying whether she would support another rate increase at the Federal Reserve's FOMC meeting scheduled for Oct. 27-28. Markets widely expect the Fed to hold its benchmark interest rate steady at the current range of 3.75 to 4.00 percent annually.


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