Intro
Cleveland Fed President Beth Hammack makes her case for higher interest rates on the morning the Fed's meeting opens with the chair's speech, arguing the inflation target has been missed for more than five years and that nothing she can see in the economy or the capital markets is restrictive. The conversation covers forward guidance, the balance sheet, a divided committee heading into September and October, and what a normal interest rate looks like.
Guest: Beth Hammack, president of the Federal Reserve Bank of Cleveland, who spent 30 years in markets before joining the Fed
Published: 28 August 2026 on Bloomberg Talks
Listen on Omny | 10 min
Key Takeaways
It is time to put restriction back into policy
The inflation target has been missed for more than five years, and her forecast is to "end this year around 3% inflation"
Employment has been "stable and in balance for the past 12 months", so she sees no tension in the dual mandate
Nothing about the economy looks restrictive to her
Capital is free flowing, investors want to put more capital to work, businesses are making bigger investments
Markets are a complement to the Fed, not a substitute
"they do that by betting on what the Fed will do, not what the Fed should do"
Interest rates stay the main tool because the balance sheet is not understood well enough to be one
"we don't really know a lot about how changes in the balance sheet will flow through into the broader economy"
Every meeting is live, including the one days before the midterm elections
She gives the identical answer to the September question and the October one
Today's rates are normal and the period before them was not
She grew up in markets in the 90s with rates between 3% and 6%; her own first mortgage was 17 percent
The Case for Raising Rates Now
The interview runs on the morning the meeting "starts in earnest" with the chairman's speech, which she calls the kickoff
The show opens by putting her own record to her: she has been "very vocal about your desire to raise rates, that you think that the inflation has been too hot for too long", and asks whether anything at this meeting has changed her mind
Nothing has. The data since the last meeting has been "very much in line with the picture that I was seeing before", and she says she is "setting my policy views based on the forecast of where I think the economy is headed rather than where we were over the past several years"
The miss is now years long: "we've been missing on our inflation target for more than five years", and "My forecast is that we're going to continue to end this year around 3% inflation." She expects a better number by the end of 2027 and says it still would not be good enough — "But that's not meeting our 2% objective."
She sees no tension in the mandate: employment is right around her estimate of maximum employment and has been "stable and in balance for the past 12 months", while the inflation side keeps missing
"I don't see restrictiveness in the markets." What she hears from people in the capital markets is that "capital is free flowing", that investors are looking to put more capital to work, and that businesses are looking to make bigger investments
The cost of waiting is her closing argument: "The longer that we wait to get inflation under control, the more pain is felt by everyday Americans and the more difficult it may be for us to ultimately get it back down."
What a Reaction Function Is, and Why She Talks About Hers
The interviewers had been arguing the night before about what the phrase reaction function actually means, one of them reporting that colleagues called it a fancy name, another cutting in with "Super technical. Super technical name. Mathematical formula."
The question they land on is what Kevin Warsh is not doing, and how she fits her own views into what Wall Street is looking for
She declines the first half of it: "I can't tell you anymore what Wall Street's looking for because now I'm on the policymaker side. I'm no longer on the market participant side."
Communicating is how she describes the job: "I view communicating about my viewpoints as a critical part of the job." Talking to the public, listening to it and hearing how people are experiencing the economy is what she says she does every day
The purpose is practical: she puts her views out "so that businesses and households can make better informed decisions", and likes to tell people how new data changes her perspective so they can manage their businesses and their household finances
Forward Guidance, and Letting the Bond Market Talk Back
The show asks how she feels about the idea of not giving forward guidance, and, given her background, about having the bond market tell the Fed what it thinks is happening in the economy
Markets are "definitely one component that I look at", and she spends time on financial conditions and FCI indices to get a sense of how monetary policy is transmitting into the real economy
Three decades on the other side left her skeptical of the signal: "having spent 30 years in markets, I can tell you that market participants tend to be focused on making money for themselves" — a voice on the desk adds "And their clients."
"And they do that by betting on what the Fed will do, not what the Fed should do."
"And so I think markets are an important complement, but not a substitute for the Fed."
Thirty Years in Repo, and Where Credibility Comes From
One of the interviewers pushes her own CV back at her: 30 years, the repo market at Goldman Sachs, and a claim that nobody in the history of the Fed understands short-term paper the way she does. Another interjects "You're underselling yourself."
She hands the compliment to the institution instead: "I think we have a lot of experts. The staff is incredible at the Fed."
The show's own claim about her bank, put to her rather than made by her, is that at the Cleveland Fed "you invented in 1983 how we look at inflation with the Cleveland series". She does not take it up
Asked whether there is still trust in what the Fed is doing, before and after the speech, she answers institutionally: "I think our credibility comes from our ability to deliver on our commitment to the dual mandate. And we are committed to delivering on bringing inflation back down to target."
The Nominal GDP Argument, and an Ohio Manufacturer's Input Costs
The show puts Ed Yardeni's published argument to her: look at where nominal GDP is, there is plenty of room, so higher rates are nothing to fear
Her own read runs in the same direction: "I think what I'm seeing is that there's not a lot of restriction in the economy." Businesses are going out, raising lots of capital and trying to make new investments, which is good for growth and can be helpful
Above-trend growth is where she locates the inflation risk: "we've been seeing GDP growth coming in above what I think of as kind of long-term averages. When you have that kind of growth, that can put pressure on inflation. That can put pressure on people chasing prices higher."
What she hears in the district: an auto parts manufacturer in Northeast Ohio told her he is seeing "double-digit inflation in some of his input costs". He is trying to pass those on, "but it's hard to get those increments to go through"
Froth Is Not the Point, and the Fed Has One Blunt Tool
Asked whether she sees signs of froth, or excesses that need taking out of the market, she says that is not what is driving her: "That's not what I'm focused on from a policy restriction perspective. It's more about getting inflation under control."
The show presses on what raising rates can actually accomplish, since it cannot move the price of oil, cannot move the price of tariffs, and is not going to curtail AI borrowing given the backlog coming from Nvidia and other semiconductor makers
Her answer is about the toolkit rather than the target: "We have one blunt tool. We have interest rates. That is our main policy tool that we have. We have the balance sheet. We have our communications. That's kind of the full suite."
With "inflation too high for too long", she says, "what monetary policy would tell you to do is to raise interest rates"
Why Interest Rates, Not the Balance Sheet
Asked whether rates are still this Fed's primary tool given the open questions about what chair Kevin Warsh plans to do, she stays with rates: "I think they're the clearest, most transparent, easiest to communicate tool that we have."
There is a track record behind that choice: "we have a long history in knowing how raising interest rates or lowering interest rates can impact the economy broadly"
The balance sheet is a pile of separate decisions rather than one lever. It is "the confluence of a lot of different things that have happened over time, starting back in the GFC" — some QE done at the zero lower bound, some plumbing to keep ample reserves in the system, and some market functioning purchases
"But we don't really know a lot about how changes in the balance sheet will flow through into the broader economy."
A Divided Committee, the September CPI, and the Meeting Before the Midterms
The show notes she will not discuss what other Open Market Committee members have said, but that counting up who has said what produces "a pretty divided committee"
The calendar it puts to her is the CPI report on September 12th and the next meeting on the 16th, with everyone "hanging on every inflation report that comes out". Does a bad CPI move the needle on September?
She gives nothing away: "I walk into every meeting with an open mind, and I think my colleagues do as well."
What matters, she says, is being squarely focused on the data that has come in and the stories from around the district, and setting policy to support the American public and growth overall
Then the October meeting, asked directly: "October 28, five days before the midterm elections, is that really, in effect, off the table because it's too close to the elections?"
She repeats herself deliberately: "I will give you the exact same answer. Every meeting is I walk in with an open mind, and every meeting to me is live."
Rules as Guideposts, and the Risk of an Unanchored Moment
One interviewer frames her as Stanford-trained — "You drank the John Taylor Kool-Aid" — and asks whether the Fed is slipping away from rules-based policy and risks an unanchored moment
She gives the rules a seat but not the last word: "rules are very helpful. They're helpful for giving you guideposts of how you should set policy, but they're not the only thing that I look at."
"They're one of many things that I look at. I look at the hard data that's coming in."
Traveling is where the rest of it comes from: "I travel the district extensively to make sure I'm getting firsthand information about what's going on because that gives me a better viewpoint as to what's happening down the road."
Normal Rates, the 90s, and Why 2008 to 2020 Was the Odd Period
Describing the assembled panel as "a number of fossils", an interviewer puts the generational split to her: two-year, 10-year and 30-year yields are higher now and the younger crew wants to panic about it
She shares the view: "I grew up in the markets in the 90s. And in the 90s, you had interest rates between 3% and 6%. And that felt pretty good."
What she hears in the district about mortgages is people saying "gosh, seven, eight percent mortgages" — against her own starting point, "My first mortgage was 17 percent."
The historical claim she makes: "I think when we go back and look at the history, I think what we'll see is that period from 2008 to 2020 was the abnormal part. Not this period we're at today."
The National Debt, the 30-Year Yield, and the One Job
The show's own figure, not hers: a lot of debt was incurred in that period and housing prices are much higher — "The U.S. now has 40 trillion dollars of debt" — so how much does that compromise the argument that today is the normal state, when it may not be sustainable for the government and its spending?
She refuses the frame outright: "Well, I have one job and that's to make sure that we're delivering on maximum employment and price stability. That's the only thing that I'm focused on when I'm walking in the room."
Asked whether she cares about the 30-year yield today, she says she watches the whole curve — the 30-year, the 10-year and "the full shape of the interest rate curve" — because it tells her where financial conditions are and how difficult or easy it is for businesses and households to borrow
On whether the 30-year is rising on fundamentals or on anxiety about the Fed's reaction function, she sends the question back across the desk: "You have access to a bunch of amazing market commentators who can give you much better insights as to why it's rising than I can."
The factors she does name: "expectations of what our policy is going to be, expectation of how persistent inflation is going to be, supply and demand forces at play"
The Only Bear Anyone Saw Was in Yellowstone
The interview ends on whether she has seen any bears yet
She had not, but her family had: "my kids did yesterday. They were in Yellowstone and they got me a great video of a bear kind of nosing around in the bushes"
"And I'm hoping not to see any more."
Hammack's bottom line is that the inflation target has been missed for more than five years, that nothing in the economy or the capital markets looks restrictive to her, and that the Fed should raise rates now rather than pay more later for having waited.
Products, Companies & Tools Mentioned
Goldman Sachs (Where the show places her 30 years in the repo market, offered as the reason it says nobody at the Fed reads short-term paper better)
Nvidia (Named by the show as the source of the semiconductor backlog it argues higher rates will do nothing to curtail)
Books & Resources Mentioned
Ed Yardeni's published work on nominal GDP (The show's source for the argument that there is plenty of room before rates become a problem; Hammack picks up his point that GDP growth has been running above long-term averages)
The Cleveland Fed's inflation series (Credited by the show with changing "how we look at inflation")
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