Fed governor warns: U.S. interest rates must rise further

The U.S. Federal Reserve must raise interest rates further to bring persistent inflation under control. This is according to Beth Hammack, President of the Federal Reserve Bank of Cleveland. According to her, the enormous investments in artificial intelligence are putting additional pressure on the economy. The warning comes just ahead of a key interest rate decision in December.

At a meeting in Columbus, Ohio, on Thursday, Hammack stressed that U.S. interest rates need to rise further to bring inflation back down to the 2% target.

According to her, the current interest rate policy is still insufficient to curb price increases. In particular, the substantial investments in data centers for artificial intelligence are creating additional demand for goods, personnel and energy.

Hammack fears that businesses and consumers will become accustomed to ongoing price increases if the central bank does not intervene.

The latest inflation figures reinforce her concerns. In October, U.S. core inflation, excluding food and energy, rose more sharply than expected.

According to Hammack, progress in reducing inflation has therefore virtually stalled. She even warns that inflation is currently moving further away from the 2% target.

The Federal Reserve kept interest rates unchanged last month at 3.75 to 4 percent. Hammack was one of the two board members who voted against that decision. At that time, she already wanted to raise interest rates by 0.25 percentage points.

She continues to advocate for further interest rate hikes, although she favors smaller, regular increments over a single, substantial increase.

According to Hammack, households and businesses can adapt more easily to gradual increases. Large interest rate hikes, on the other hand, can unnecessarily disrupt the economy.

There is disagreement within the Fed on this matter. Board member Christopher Waller warned this week that a 0.5 percentage point increase may be needed in December.

Hammack does not entirely rule out larger steps but does not consider them necessary at this time. She wants to wait for the upcoming economic data before deciding her position for the December interest rate meeting.

Higher US interest rates can also have an impact on the financial markets. Savings and bonds become more attractive, while borrowing becomes more expensive. This could put pressure on interest in risky investments, such as stocks and Bitcoin (BTC).