The head of the Federal Reserve Bank of Cleveland, Beth Hammack, spoke in favor of further tightening of monetary policy in the US. In her assessment, the American economy remains strong, and inflation is still at too high a level. Hammack allowed for a change in the pace of rate hikes, but not a change in the overall direction of policy.
What exactly Hammack said
Hammack supports a further rate hike needed to cool demand and reduce inflationary pressure. At the same time, she remains open to adjusting the speed of tightening. This means that the Fed may use smaller steps, but the rate hike cycle itself, in her assessment, is not necessarily over yet.
Why she considers the economy strong
Hammack noted that the economy's resilience is not only due to investments in artificial intelligence. According to her, companies in other industries also feel confident and continue to invest in development. Communication with businesses, in her assessment, corresponds more to a picture of a growing economy than to a pronounced slowdown.
Why then raise the rate
A strong economy allows companies and consumers to maintain high demand. If this demand remains resilient, inflationary pressure may decline more slowly than the Fed requires. Therefore, further tightening must affect either corporate investment or consumer spending.
How the dollar reacted
The American currency ended the session higher against its main competitors. The most notable move was in the USD/CHF pair, which gained about 0.53% during the day. Hawkish statements from Fed officials usually support the dollar, as the market begins to price in a higher interest rate trajectory.
Why this matters for other markets
Growing rate expectations can support US bond yields and the dollar. For gold, this creates additional pressure, since the metal does not generate interest income. Stock indices and cryptocurrencies may also react with declines if investors begin to expect more expensive financing and a longer period of high rates.
The decision is not made by one Fed official
Beth Hammack does not determine monetary policy on her own. Decisions are made collectively by the Federal Open Market Committee. Nevertheless, statements from Fed officials help the market assess sentiment within the regulator and can noticeably move the dollar even before the publication of new economic data.
What's next
The main question remains whether the next data will confirm the need for another rate hike. Particularly important will be inflation, labor market, and consumer activity indicators. If the economy continues to demonstrate resilience and inflation remains high, expectations of further tightening may intensify.
The dollar twitched at one in the morning. Were you in a position?
Speeches by Fed officials often take place outside the main trading session and can quickly change the movement of currency pairs. For a prop trader, the rules for trading on news and the method for calculating daily drawdown are especially important here. Different prop firms have different restrictions around important speeches and macroeconomic events, so it is better to check them before opening a position.