When Companies Stop Driving a Hard Bargain, This Fed Official Starts Worrying

 

When Companies Stop Driving a Hard Bargain, This Fed Official Starts Worrying

**Beth Hammack says businesses' pricing power and a sturdy economy show interest rates aren't yet high enough to tame inflation**

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## The Factory Floor Warning

Let me tell you about a guy named Jack Schron. He runs a family manufacturing business in Cleveland called Jergens. It's built on the site of old railroad buildings on the city's east side. He's been running it for years, and he knows his business inside and out.

Last week, Jack spent 90 minutes showing Cleveland Fed President Beth Hammack around his factory. He wasn't complaining. He wasn't asking for help. He was showing her how good business has gotten.

That's what worried her.

When a manufacturer tells a Federal Reserve president that business is *good*—that he has pricing power, that he can raise prices without losing customers, that demand is strong enough to absorb higher costs—that's not good news for someone trying to bring inflation down to 2%.

It's a warning sign.

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## The "Inflationary Mindset"

Hammack has a phrase for what she's seeing. She calls it an **"inflationary mindset"**.

Here's what she means. Businesses aren't just raising prices to cover their current costs. They're raising prices *in anticipation* of future inflation. They're building in a buffer. They're protecting their margins against shocks they haven't even seen yet.

She gave a specific example from her district. A retailer started raising prices by an amount that **exceeded** the current rise in input costs. Why? Because the retailer expected more inflation to come. They didn't know where it would come from. They just knew it would come.

"They know there will be more inflation ahead, they just don't know where it will come from. They want to maintain their profit margins," Hammack said.

That's the problem. If businesses start pricing in future inflation *now*, they're essentially creating the inflation they're trying to protect against. It becomes a self-fulfilling prophecy.

And that makes the Fed's job much, much harder.

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## The Data Behind the Concern

This isn't just a feeling Hammack has. The data backs her up.

**Inflation is running hot.** The Cleveland Fed's own nowcasting models project September PCE inflation at **3.93%** year-over-year, with core PCE at **3.49%**. That's nearly double the Fed's 2% target.

**Inflation has been above target for more than five and a half years**. That's not a blip. That's a pattern.

**The economy is still growing.** The September jobs report showed only 29,000 jobs added, but Hammack dismissed the weak headline number. She pointed out that over the past 12 months, the economy has averaged **41,000 new jobs per month**—which she estimates is roughly the break-even rate needed to keep the labor market stable.

**Companies are testing their pricing power.** Look at the earnings reports coming in. McCormick beat expectations on the back of **2.2% price increases**. PepsiCo is planning **low- to mid-single-digit price increases** on snacks to keep pace with inflation, even after cutting prices earlier this year. BellRing Brands saw its Dymatize brand post a **20.7% price/mix contribution** to sales growth.

Companies are raising prices because they *can*. Because their customers are still buying.

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## Why This Matters to Every American

Let me bring this back to you.

If Hammack is right—if businesses have enough pricing power to keep raising prices, and if that pricing power is fueled by expectations of even more inflation—then the Fed's job isn't done. Interest rates aren't high enough to slow the economy down. The Fed will have to keep rates higher for longer. Maybe raise them again.

What does that mean for your wallet?

**Mortgage rates stay elevated.** The 30-year fixed mortgage is already around 7%. If the Fed signals more tightening, that number doesn't come down anytime soon.

**Credit card rates stay high.** The average APR is already around 20%. Higher-for-longer Fed policy keeps it there.

**Business loans stay expensive.** Small business owners who need capital to expand will keep paying more to borrow.

**Savings accounts keep paying decent rates.** That's the one silver lining. If you have cash in the bank, you're earning more than you were a few years ago.

The Fed isn't trying to hurt you. It's trying to bring inflation down. But the tool it uses—higher interest rates—is a blunt instrument. And right now, Hammack is saying the instrument needs to be used more aggressively.

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## Frequently Asked Questions

**Q: Who is Beth Hammack?**

A: Beth Hammack is the President of the Federal Reserve Bank of Cleveland. She's a voting member of the Federal Open Market Committee (FOMC) in 2026. She's been one of the most hawkish voices on the Fed, consistently arguing for higher rates to fight inflation.

**Q: What is the "inflationary mindset" she's warning about?**

A: It's the phenomenon where businesses and consumers start expecting continuous price increases and change their behavior accordingly. Businesses raise prices in anticipation of future inflation, not just to cover current costs. This can make inflation self-perpetuating and harder for the Fed to control.

**Q: What specific example did she give?**

A: She cited a retailer in her district that raised prices by more than its current input costs had risen. The retailer was protecting against future inflation it anticipated but couldn't yet see.

**Q: What does the inflation data show?**

A: The Cleveland Fed's nowcasting model projects September PCE inflation at **3.93%** and core PCE at **3.49%**. Inflation has been above the Fed's 2% target for more than five and a half years.

**Q: What does Hammack want the Fed to do?**

A: She's been a consistent advocate for higher interest rates. She has said the Fed's current policy isn't restrictive enough and that it may need to raise rates more than once to bring inflation back to target.

**Q: Why does the jobs report matter?**

A: The September jobs report showed only 29,000 jobs added, but Hammack views the labor market as stable, not weak. She pointed to the 12-month average of 41,000 jobs per month as consistent with full employment. That means the Fed doesn't need to cut rates to support the job market—it can focus on inflation.

**Q: When is the next Fed meeting?**

A: The FOMC meets on **October 27-28, 2026**. Markets currently expect no rate change at that meeting, but the December meeting is still in play for another hike.

**Q: What are companies saying about pricing?**

A: Earnings reports show widespread pricing power. McCormick beat expectations with 2.2% price increases. PepsiCo plans low- to mid-single-digit price hikes on snacks. BellRing Brands saw a 20.7% price/mix boost. Companies are raising prices because demand supports it.

**Q: What should investors watch?**

A: Key data releases include the **September CPI (October 14)** and **PPI (October 15)**. Barclays expects CPI to rise to **3.7%** year-over-year, driven by energy prices. If inflation comes in hotter than expected, the case for another rate hike strengthens.

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## Conclusion: The Pricing Power Problem

Here's what I keep coming back to when I think about Jack Schron showing Beth Hammack around his factory.

He was proud. He should be. He runs a good business. He's survived recessions, supply chain crises, and a pandemic. His company is thriving.

But from the Fed's perspective, his success is a problem.

When businesses can raise prices and customers keep buying, that means demand is still too strong relative to supply. The Fed's job is to cool that demand down. To make borrowing expensive enough that businesses stop expanding and consumers stop spending so freely.

Jack Schron's factory floor is a data point. It tells Hammack that the economy hasn't slowed enough. That rates aren't high enough. That there's more work to do.

And if she's right, that work will be felt by every American who borrows money, every business that wants to grow, and every family trying to buy a home.

The Fed is trying to thread a needle: slow the economy enough to tame inflation without tipping it into recession. Hammack's message is that the needle isn't threaded yet. And the pricing power she's seeing in Cleveland is the reason.

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## Disclaimer

**This article is for informational and educational purposes only. It does not constitute investment, financial, or economic advice. The author has no position in any securities mentioned. Information presented here is based on publicly available sources and reported statements as of the publication date. Federal Reserve policy is subject to change based on evolving economic data. The anecdotal accounts presented are illustrative and based on reported interactions. Investing involves risk, including the potential loss of principal. Always consult with a qualified financial advisor before making any investment decisions.**