Fed official Hammack: Economy faces successive shocks, raising the risk of entrenched inflation psychology.

Cleveland Fed President Beth Hammack said the U.S. economy is facing a series of supply shocks that raise the risk of inflation psychology becoming entrenched. "The inflation outlook remains highly uncertain, with risks skewed to the upside," Hammack said Thursday at a conference hosted by the Cleveland Fed. "A particularly thorny problem for monetary policy right now is the recent string of shocks, including both supply-side shocks from tariffs and oil prices and demand-side shocks from the AI-related capital spending boom," she said. "Conventional wisdom holds that monetary policy should look through supply shocks," Hammack said. "But if the economy is more vulnerable to shocks, or if shocks keep coming when inflation has already been elevated for several years, the risk of inflation psychology becoming entrenched is higher." She said: "The longer high inflation persists, the harder and more costly it may be to bring it back down."