After visiting manufacturing companies in her district, Beth Hammack, President of the Federal Reserve Bank of Cleveland, stated that U.S. companies possess strong pricing power and a resilient economic fundamentals, and that current interest rates are insufficient to completely suppress inflation. Firsthand observations at a factory: Delivery is paramount, and companies maintain strong pricing power. Hammack visited Jergens, a family-owned manufacturing company in Cleveland. This company specializes in industrial jigs and quick-release components for aerospace and entertainment equipment. Currently, with surging aerospace orders and tariffs increasing costs for overseas competitors, the company is also launching its largest machine tool procurement plan in its 84-year history. Company representatives stated that customer purchasing logic has shifted: quality is merely the minimum requirement; delivery speed is the core consideration. Buyers are willing to pay a premium for faster delivery cycles, directly increasing company profits and giving manufacturers room to raise prices. In Hammack's view, the current situation at this factory is a microcosm of many businesses in the district.

Demand growth outpacing supply capacity is the core cause of persistent inflation.

The Federal Reserve raised its benchmark interest rate to 3.75%-4.00% last month, but Hammark believes further increases are necessary. US inflation has been above the 2% target for five consecutive years, and most FOMC officials expect it to return to the target level only by 2029, a timeframe Hammark considers too long. Pressure on low-income families continues to intensify, with some forced to sift through bills and prioritize essential spending. Hammark's hawkish stance: favoring small, multiple rate hikes, with no apparent policy constraints on the economy. Hammark is a staunchly hawkish official within the Fed, advocating for small, multiple rate hikes to reduce the impact of policy changes on businesses. When the July meeting kept interest rates unchanged, she was one of three members who voted against raising rates. Her estimate of the neutral interest rate is high within the committee, and she even predicts that the figure may still be underestimated. In her observation, capital continues to flow in, corporate profits are improving, and the economy has not felt significant tightening constraints. The FOMC meeting minutes showed that most officials acknowledged the solid state of the US economy, with AI investment driving capital expenditures in the industrial and technology sectors. They also noted that the risk of rising inflation should not be ignored, and a rate hike by the end of the year was possible, but many officials believed immediate action was unnecessary this month. JPMorgan Chase warned that industrial commodity prices remained resilient, corporate pricing power had not diminished, and the option of a rate hike remained open for the rest of the year. Deutsche Bank also mentioned that a strong economy would suppress expectations of rate cuts, and the tightening cycle was unlikely to end quickly.

Can tightening in the bond market replace interest rate hikes? Market opinions are divided.

Since the beginning of this summer, US long-term bond yields have risen, increasing overall financing costs and gradually bringing financial conditions closer to neutral. However, Hammark explicitly refuted the notion that "the bond market can replace the Fed's interest rate hikes," arguing that tightening at the long end is merely a policy supplement and cannot replace monetary policy actions. Market opinions are divided. Morgan Stanley's Mike Wilson and Invesco suggested that the rise in long-term bonds has already completed a round of tightening financial conditions, and if CPI data remains moderate, the Fed is unlikely to continue raising interest rates.

AI computing power is driving structural inflation, and interest rate hikes have limitations in controlling it.

Hammark frankly stated that interest rate hikes cannot eliminate all sources of inflation. AI data center capital expenditures are highly resilient, with ample project funding, low price sensitivity among buyers, a preference for securing capacity, and a willingness to pay premiums for components. However, interest rate hikes can reshape resource allocation: data centers, aviation, energy, and transportation will compete for similar industrial components; higher financing costs will cause other industries to reassess new projects, marginally cooling demand and easing price pressures. UBS also points out that AI infrastructure brings new variables, and computing power-related capital expenditures are difficult to suppress by rising interest rates; Bernstein, TrendForce, and other industry institutions add that AI servers continue to compete for industrial component capacity, and cross-industry competition is driving up industrial product inflation, corroborating Hammark's observations from his field research.

Labor shortages coupled with tariff costs continue to push up prices.

While year-on-year wage growth has slowed compared to last year, the labor shortage in the manufacturing sector remains a prominent issue. The number of applicants for Jergens positions continues to decline, with new employees starting at higher salaries than existing staff, forcing companies to raise wages across the board and solidify labor cost pressures. Tariffs have a two-way effect: on the one hand, they increase the prices of parts from overseas competitors; on the other hand, the tariff costs for companies purchasing high-end machine tools from Germany, Japan, and South Korea can reach up to $200,000, ultimately passed on to the final selling price. Multiple macroeconomic institutions analyze that the wage slowdown is merely a superficial phenomenon, and the labor supply gap will persist in the long term. Companies raising starting salaries to attract talent, leading to wage increases for existing employees, maintains inflationary momentum through this wage revaluation mechanism, consistent with the logic observed in factory surveys.

Differences in policy communication philosophies and market interest rate pricing

Hammark and Federal Reserve Chairman Warsh have differing views on policy communication. Warsh favors reducing forward guidance to avoid officials being bound by predetermined forecasts, while Hammark advocates fully communicating policy logic to the public, relying on business visits to anticipate economic signals before official statistics show inflection points. Interest rate market pricing indicates a low probability of an October rate hike, but expectations for a December rate hike have risen significantly. The market has already priced in the possibility of another rate hike this year, and subsequent CPI data will be key to verifying the sustainability of inflation.