Divergence Among Federal Reserve Officials Emerges: Barkin Supports Holding Steady, Hammack Insists on Rate Hike

Divergence within the Federal Reserve over the next steps in monetary policy has become increasingly public. On Thursday, Richmond Fed President Barkin outlined the rationale for keeping interest rates unchanged while warning of persistent inflation risks; Cleveland Fed President Hammack reiterated her support for a rate hike, continuing the dissent she voiced at the July policy meeting.

On the 13th, Barkin stated in a speech in Greenville, South Carolina, that current inflation largely stems from "transitory shocks" such as tariffs and oil price spikes triggered by the war in Iran, which form the core logic behind his support for holding steady. However, he also pointed out that if supply chain challenges and the artificial intelligence investment boom persist, they could create more sticky price pressures, potentially necessitating further policy tightening.

Hammack, speaking separately in Dayton, Ohio, was more direct: "I believe we need to act now."

The public statements by these two officials have made market expectations for the Fed's September policy meeting even harder to decipher. The Fed held rates unchanged for the fifth consecutive time last month, but the camp of officials advocating for tighter policy is expanding.

Barkin: Inflation May Subside, But Risks Remain

Barkin’s assessment of the current economic situation is generally optimistic, though cautiously worded. He emphasized that the unemployment rate has remained below 4.5% for 58 consecutive months, setting a historical record, and that the US economy remains consumer-driven and resilient overall. Even low-income households continue to sustain their consumption spending.

He also noted that the investment boom outside of AI data centers deserves attention. "Bank project pipelines are healthy, M&A activity is active, leases are being signed, factories are being built, and the defense sector is booming," Barkin said:

"Many business leaders believe that high uncertainty has become the new baseline, and they can no longer afford to wait."

He also mentioned that artificial intelligence investment appears "immune" to interest rate levels, with related capital expenditures not significantly contracting despite current higher financing costs.

However, Barkin did not indicate a specific stance for the September meeting. He does not hold a voting seat on the Federal Open Market Committee (FOMC) this year.

Hammack: Clearly Supports Rate Hike, Focuses on Financial Stability Risks

In contrast to Barkin’s cautious wording, Hammack’s position is more distinct. She joined two other members in dissenting at the July FOMC meeting, supporting a 25-basis-point increase in the federal funds rate, and reiterated this stance in her recent speech.

Regarding financial stability, Hammack expressed more specific concerns. She pointed out that significant leveraged funds are being used to purchase US Treasuries, which is one of her key areas of focus; additionally, the expansion of private credit and the potential existence of a bubble in the artificial intelligence sector are also within her monitoring scope.

On the labor market, Hammack stated that conditions are "quite good," with the unemployment rate remaining relatively stable, serving as the best indicator of employment health.

Mixed Economic Data, Unresolved Policy Divergence

The policy dilemma currently facing the Federal Reserve stems partly from mixed signals in economic data. Consumer price increases in July were mild, broadly meeting expectations; meanwhile, although new job growth remained weak, the unemployment rate fell to 4.1%. This set of data failed to effectively resolve the divergence in paths within the FOMC.

Currently, the Fed has held rates unchanged for five consecutive meetings, but hawkish voices continue to intensify. The situation described by Barkin, where there are "arguments both for and against raising rates," precisely reflects the dilemma facing policymakers—how to balance the necessity of continued tightening against the potential risks of an economic downturn, against the backdrop of inflation yet to return to the 2% target.