On Monday (October 12), Cleveland Federal Reserve President Beth Hammack's speech at the National Association for Business Economics' annual meeting once again focused market attention on the Fed's internal policy disagreements and communication strategies. She clearly stated that current interest rates still need to be higher, that inflationary pressures have spread from specific sectors such as energy to the broader demand side, and that the economy needs further tightening. She also emphasized that "small, frequent" policy adjustments are better than a one-off, large-scale correction. The timing of this statement is itself significant: coming at a time when new Chairman Warsh has taken office and the market is attempting to recalibrate the Fed's communication paradigm, a voting member's public and explicit articulation of a restrictive stance provides further internal commentary on the "action rather than wait" approach within the committee. This statement is not an isolated signal, but rather, placed against the backdrop of the new Fed leadership in 2026, the energy shock caused by the Iran conflict, the effects of tariffs, and the demand pressure from AI infrastructure, it helps readers better grasp the current spectrum of attitudes and policy response functions of the Federal Open Market Committee (FOMC) members. Hammark's core position: Inflation is "overheated" and needs to be tightened more quickly. As a voting member in 2026, Hammark has long been considered a relatively hawkish figure. She pointed out that the Fed has failed to achieve its 2% inflation target for five and a half years, and the current trend shows inflation in the mid-to-high 2% range. Even with appropriate monetary policy, returning to the target will still take time. What's noteworthy here isn't just her assessment of the inflation level, but her emphasis on "time cost"—every month of delay in tightening increases the risk of expectations derailing, which is the logical starting point for her advocacy of early, gradual action. Inflationary pressures are no longer limited to energy (affected by conflicts related to Iran), but are widespread: tariffs are pushing up costs, the expansion of artificial intelligence infrastructure is creating strong demand for electricity and technological components, and these demand-side pressures are not self-correcting. In other words, within Harmark's framework, current inflation is not a short-lived pulse from a single supply shock, but a complex process of supply disturbances and structural demand expansion, the latter being more persistent and more likely to evolve into endogenous price increases. Businesses have begun planning price increases exceeding the rise in input costs, suggesting a risk of a entrenched "inflationary mentality." She believes current financial conditions are broadly neutral and the labor market is robust, providing room for further tightening. Therefore, "a restrictive monetary policy stance is appropriate," interest rates need to be higher, and the economy needs further tightening. However, she prefers "small adjustments where feasible and relatively swift action" rather than waiting and being forced to make significant corrections later. This reduces the risk of policy misjudgment and helps anchor inflation expectations. Hammark also emphasized that officials have a responsibility to clearly articulate their "response function" (i.e., how to adjust policy based on data), but should avoid equating it with "forward guidance" to prevent the market from interpreting it as a commitment. The Fed's overall picture: Consensus and disagreements under the new chairman. At the September 2026 meeting, the Fed pushed the committee to unanimously raise the target range for the federal funds rate by 25 basis points to 3.75%-4.00% to address price pressures reignited by the Iranian conflict and AI-related demand. This is the first rate hike in recent years, and most officials expect at least one more rate hike this year in their economic forecasts. The committee members' statements show a coexistence of hawks and cautiouss. Several officials believe that inflation is still too high and employment is close to full capacity, supporting further rate hikes this year, but emphasizing that consecutive meetings are unnecessary and that the timing can be flexibly determined based on data. For example, some members pointed out that the economy is resilient enough to withstand tighter policies, while others reminded that the upcoming consumer price data needs to be observed. This pattern of "consistent direction, but inconsistent pace" corresponds to the tug-of-war between "small, frequent" tightening and "wait-and-see action" as described by Hammark: the disagreement lies not in whether to tighten, but in the pace and timing of tightening. The market currently prices a high probability that the October 27-28 meeting will maintain interest rates, with a stronger expectation of a December rate hike. While Hammark's speech did not explicitly support an immediate rate hike this month, it reinforced the consensus that a "restrictive stance is necessary," while highlighting internal discussions on the pace of adjustment—small, rapid steps or wait-and-see action. Policy Implications and Market Impact: From Reaction Function to Expectation Management The core of Hammark's speech lies in the value of communication: a clear reaction function helps businesses, households, and investors plan better, but if misinterpreted as a certainty, it can increase volatility. This echoes and creates tension with the "reduce excessive guidance" tone under Warsh's leadership. Current inflation drivers are diverse (supply shocks coupled with demand expansion), meaning policy may require a more persistent restrictive stance rather than a rapid shift to easing. For the market, this means the interest rate path still leans towards upside risks. If Wednesday's inflation data continues to show stickiness, or employment remains stable, the probability of a December rate hike will increase further. Expectations of "small, frequent adjustments" in bond yields, the dollar exchange rate, and risk assets may manifest as lower volatility but a higher central level. In the long term, if inflationary sentiment solidifies, the Fed may be forced to take more forceful action, increasing the risk of a "hard landing" for the economy; conversely, if timely fine-tuning successfully anchors expectations, a better balance between growth and price stability can be achieved. Outlook: Key Nodes in Data Window and Policy Path The next two weeks are a crucial observation period: the Consumer Price Index (CPI) will provide the latest inflation readings, and the FOMC meeting at the end of October will determine the near-term path. The distribution of data within this time window is also structurally significant: the CPI will be released first, followed by the meeting and decision-making, meaning that committee members will have ample evidence to adjust their respective calibrations of the "reaction function" before the rate meeting, providing greater flexibility regarding whether to raise rates in December. Hammark's remarks reminded the market that the Fed is not monolithic, but most agree that inflation remains the main risk, and policy needs to remain restrictive. Readers should pay attention to how committee members differentiate between "reaction functions" and "guidance," and how communication under Warsh's leadership affects market pricing. Overall, Harmark's remarks reinforced the hawkish narrative, but within the broader framework of the committee, it resembles a call for a "timely, gradual tightening" path. Understanding these statements helps to grasp the subtle pace of the Fed's transition from "wait-and-see" to "action," and the long-term challenge of maintaining the 2% target amid complex shocks. Future policy will remain highly data-dependent, and clear, consistent communication will be a key tool for stabilizing expectations.