Headline: Fed’s Hammack Warns Services Inflation Is Sticky, Reaffirms 2% Goal
Introduction: A senior Federal Reserve official signaled that inflation remains uncomfortably persistent, emphasizing that price pressures—especially in services—could linger longer than markets expect. While the labor market still appears resilient, the policymaker underscored that returning inflation to the Fed’s 2% target is essential for credibility and long-term price stability.
The official described inflation as stubborn, hovering near 3%, and highlighted the services sector—rather than imported goods—as the primary source of ongoing pressure. With a wave of annual contract renegotiations approaching at the start of the year, businesses may pass through higher costs, potentially slowing further disinflation. Core services inflation excluding housing was noted as unlikely to be driven by tariffs, suggesting domestic cost dynamics and wage-sensitive categories remain the key forces.
Despite expressing caution about labor conditions, the policymaker said the probability of a sharp labor-market downturn is not high. On employment, they added that monetary policy has likely done most of what it can. The message was distinctly hawkish: easing inflation back just below 3% would not be sufficient, and the Fed remains committed to bringing inflation all the way to 2%, reinforcing the central bank’s focus on price stability, inflation expectations, and the interest-rate path ahead.
Key Points: – Inflation remains elevated near 3%, with services driving most of the pressure. – Upcoming contract resets early next year could reinforce price increases. – Core services ex-housing are viewed as less influenced by tariffs or imported goods. – The labor market is being monitored, but the odds of a sharp downturn are seen as low. – Monetary policy has limited additional room to support jobs at this stage. – The Federal Reserve remains committed to restoring inflation to its 2% target.
