Fed's Hammack Warning: The Inflation Beast Remains at the Table

Federal Reserve official Hammack's latest message from the podium is forcing Wall Street to seriously question its optimistic scenarios. Emphasizing that the risk of persistently high inflation remains a decisive factor in the central bank's policy moves, this statement leads to a repricing of interest rate cut expectations in the markets, dampening risk appetite in the short term.

Patience and Rigor in Monetary Policy

This shift in the rhetoric of central bank officials in recent periods ignites debates on whether the steps taken to cool economic activity are sufficient. Hammack's emphasis points to the possibility that inflation is not just a temporary wave but a structural issue, signaling that the policy normalization process could be longer and more arduous than expected.

■Skepticism is rising regarding inflation converging permanently to the 2% target.

■The duration of the "higher for longer" stance in policy rates is expected to extend beyond market forecasts.

■Rigidity in the labor market keeps price pressures alive, preventing early rate cuts.

Smart Money's New Position

We are going through a period where risk appetite in investor portfolios is decreasing and the shift towards safe havens is accelerating. Smart money is adjusting its positions to the short term based on the scenario that interest rate cuts may be delayed, while exits from long-term assets are gaining momentum.

The flows I observe in market depth show that smart money is currently favoring cash or short-term Treasury bills. Hammack's hawkish stance increases downward pressure on long-term bond prices, steepening the yield curve. When HFT algorithms detect the "persistent" emphasis from Fed members, they increase selling pressure within milliseconds; this causes market makers to suddenly narrow liquidity depth and widen spreads.