Dissent emerges as Fed sticks to its course
Three Federal Reserve officials have pushed back against the decision to hold interest rates steady at a 3.5%-3.75% range, arguing the central bank must act to control inflation. Cleveland President Beth Hammack and Minneapolis President Neel Kashkari voiced their concerns in statements, each citing the risks of waiting to raise borrowing costs. Hammack and Kashkari believe taking immediate action is necessary to prevent further economic instability.
Hammack emphasized that delaying action could make reducing inflation both harder and more disruptive for the economy. Kashkari argued that small rate hikes now might allow the Fed to avoid more aggressive moves in the future. Kashkari suggested that incremental tightening could mitigate the need for more drastic steps later, which could have a greater impact on economic growth.
Inflation above target for over five years
The Fed’s policy-making FOMC voted to keep rates unchanged, a move that has defined the central bank’s stance all year. Inflation has lingered above the 2% target for more than five years. Kashkari and Hammack joined Dallas President Lorie Logan in dissenting against the hold, while the remaining nine members of the committee backed the decision. The Fed has held rates steady since a series of three rate cuts in the latter part of 2025, but officials remain divided about the best course forward.
Logan, like Hammack and Kashkari, argued the Fed cannot rely on unpredictable economic shocks to bring inflation down. Instead, she said, the central bank needs to be more proactive. “In my view, now is the time for the [FOMC] to act to speed the return of PCE inflation to our 2 percent objective,” Hammack said. Logan warned that waiting for an unexpected economic jolt to lower inflation could delay action until it’s too late to prevent entrenched price increases.
Energy prices and demand weigh on Fed thinking
Kashkari and Hammack cited both energy price increases and consumer demand as contributors to inflation. Hammack noted that businesses in the Cleveland area report pricing pressures that are still expanding, not easing. Kashkari linked the current inflationary environment to both the 1970s era and past Fed misjudgments during the pandemic. He also pointed out that recent energy price increases have contributed to renewed fears that inflation may not return to target without additional Fed intervention.
“Economic theory argues that monetary policy is the right tool to address demand-driven inflation but faces greater trade-offs when dealing with supply shocks,” Kashkari said. “I increasingly believe that monetary policy does have an important role to play in addressing a series of successive supply shocks that might lead to entrenched higher inflation.” Kashkari also noted that the Fed’s recent history shows a tendency to underestimate inflationary risks, which can lead to delayed responses with worse consequences. Logan is expected to release a statement explaining her position later Friday.