Federal Reserve Bank of Cleveland President Beth Hammack said lowering interest rates to support the labour market could extend the period of above-target inflation and increase financial stability risks. Recent stock market gains and easy credit conditions add to the danger by encouraging investors to take more risk, Hammack said on Thursday (November 20) in remarks prepared for a conference hosted by the Cleveland Fed.

"Lowering interest rates to support the labour market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets,” Hammack said Thursday. “This means that whenever the next downturn comes, it could be larger than it otherwise would have been, with a larger impact on the economy.”

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