Federal Reserve Bank of Cleveland President, Loretta J. Hammack, has raised concerns about the persistence of inflation risks in the economy, despite a strong labor market. In her latest speech, Hammack highlighted that core inflation pressures are broad-based and not limited to energy prices, with particular emphasis on still-elevated core services.

Hammack’s remarks come as a surprise, given the recent decline in oil prices and the subsequent decrease in headline inflation. However, she stressed that the labor market remains close to full employment, which could lead to higher wages and prices in the long run. The president of the Cleveland Fed emphasized that the central bank will approach upcoming meetings with an open mind, avoiding pre-commitment and keeping optionality intact.

While Hammack did not explicitly mention the possibility of a rate hike at the next meeting, her words suggest that the Fed is taking a more cautious approach to inflation. The Federal Reserve has raised interest rates several times in recent years to combat inflationary pressures, and Hammack’s comments indicate that they may need to keep rates higher for longer to maintain price stability.

The broad-based nature of core inflation pressures is a cause for concern, as it suggests that the current economic expansion is not just driven by transitory factors like energy prices, but rather has deeper roots in the economy. This could make it more challenging for the Fed to bring inflation back down to its target range without causing a slowdown in economic growth.