Fed's Hammack Puts Rate Hike on Table as Inflation Nears 3.5%
Cleveland Fed president says borrowing costs may need to rise if prices don't cool. Internal estimates show April inflation hitting highest level since 2024.
The Fed isn't ruling out rate hikes.
Cleveland Fed President Beth Hammack said Monday that raising interest rates could be "appropriate" if inflation remains stubbornly above the central bank's 2% target. Her internal estimates show inflation potentially reaching 3.5% in April—the highest reading since 2024.
This marks a significant shift in Fed communication. For most of 2025, officials debated how quickly to cut rates. Now they're openly discussing the opposite.
Hammack's Position
In an interview with the Associated Press, Hammack said her preference is to keep the benchmark rate unchanged "for quite some time." But she added a clear caveat: if inflation keeps moving higher, borrowing costs may need to rise.
"Inflation has been running above our target for more than five years now," she said. "A further increase would mean it is moving in the wrong direction, away from our 2% objective."
The Cleveland Fed's nowcast puts April inflation at 3.5%. That's not an official forecast, but it reflects real-time data on prices, wages, and energy costs. If the actual CPI print comes in anywhere close, the case for patience evaporates.
Not Just Hammack
She's not alone. Chicago Fed President Austan Goolsbee has also signaled openness to rate increases. And minutes from the January meeting revealed that several officials on the rate-setting committee supported changing the post-meeting statement to acknowledge the possibility of "upward adjustments."
The Fed held rates steady at 3.5%-3.75% in March for the second consecutive meeting. Markets had been pricing in one or two cuts by year-end. That pricing has shifted dramatically over the past month.
| Rate Path | March Pricing | Current Pricing |
|---|---|---|
| Cuts by Dec 2026 | 1-2 | 0 |
| Hikes by Dec 2026 | 0 | 0-1 |
We covered the Fed's stagflation bind earlier this week—inflation driven by oil while the labor market softens. The Iran ceasefire announced Tuesday night helps on the energy side, but core inflation pressures remain.
Why It Matters
The last Fed rate hike was in July 2023. Since then, the narrative has been entirely about when and how fast to cut. A return to hiking would be a regime change.
For markets, it means:
- Growth stocks face renewed pressure from higher discount rates
- Housing stays frozen as mortgage rates climb
- Banks benefit from wider net interest margins
- Bonds sell off, extending the drawdown that's hit fixed income since February
The ceasefire rally in futures Wednesday morning reflects oil prices falling, not Fed expectations improving. If inflation data doesn't cooperate over the next few months, the Fed conversation shifts back to tightening—and that's not priced in yet.
The Counter-Argument
Not everyone at the Fed agrees. Several officials still see inflation coming down as pandemic-era distortions fade and housing costs normalize. They argue that hiking now would crush an already-weakening labor market without addressing supply-driven price pressures.
The March jobs report showed surprising strength, but earlier months painted a softer picture. The labor market is bending, even if it hasn't broken.
Hammack acknowledged this tension. Monetary policy "cannot help increase global oil supply," she noted. But she also can't ignore prices that are moving higher every month.
For now, the Fed is holding. But the next inflation print could change everything. Traders expecting a dovish pivot in 2026 might want to reconsider that bet.