Federal Reserve's Harker "hawkish": Inflation outlook concerning, opposes rate cuts

According to the Zhitong Finance APP, Beth Harmack, President of the Cleveland Federal Reserve, stated that the inflation rate may remain above target levels until 2028, which concerns her, and therefore she opposes interest rate cuts. The policymaker noted that the Federal Reserve has failed to achieve the 2% inflation target for over four and a half years, and this situation is likely to persist for some time. Harmack stated, "I continue to see inflationary pressures, whether it is overall inflation or core inflation, and I am particularly concerned about service sector inflation. My prediction is that we may still be above the target level in the next one to two years, and it may take until the end of 2027 or early 2028 to truly return to the 2% target level." Although some Federal Reserve officials have acknowledged that the impact of tariffs on prices is currently relatively minor, Harmack remains cautious and disagrees with the view that this impact is merely temporary. She said, "I am still concerned about inflation. I believe we do need to maintain a restrictive policy stance." Data released last week showed that personal consumption expenditures in the U.S. rose more than expected in August, while underlying inflation pressures remained stable. On September 17, Federal Reserve officials lowered the target range for the benchmark federal funds rate by 25 basis points, the first cut since December of last year, despite significant pressure from the Trump administration for rate cuts. Harmack stated that she believes the current policy stance is "slightly restrictive." She said, "In my view, we are just one step away from reaching a neutral level. I would only consider adopting an accommodative policy when I see more obvious signs of economic recession, but I do not see such a situation at present." Federal Reserve officials will hold their next policy meeting on October 28-29. The futures market expects about a 90% chance that the Federal Reserve will cut rates by another 25 basis points. When asked about the independence of the Federal Reserve, Harmack stated that the many discussions surrounding the Federal Reserve and what measures it should take are actually "quite normal," as the U.S. government has previously expressed opinions on related policies. Even so, she stated, "There has never been a situation where a governor temporarily did not perform their duties, nor has there ever been an instance of a president attempting to remove a governor." With a government shutdown looming, Harmack stated, "I expect that the longer the government shutdown lasts, the greater the drag on GDP will be. We need to observe the long-term impacts of these events and how this situation will develop."