By Howard Schneider and Ann Saphir
PALO ALTO, California (Reuters) -The Federal Reserve needs more time to see how the economy responds to U.S. President Donald Trump's tariff and other policies before figuring out the right response, Cleveland Fed President Beth Hammack said on Friday, noting that much of the administration's sweeping agenda remains unclear.
"I stand ready to move whenever we have clear and convincing evidence, but ... given the overall breadth of the policies that have been discussed and put in place, I think there's a real question about what those impacts are going to look like, and so it may take longer," Hammack said.
"There's not a lot of data between now and June," when the Fed next meets to set interest rates, she said in an interview on the sidelines of a monetary policy conference at Stanford University's Hoover Institution in which she elaborated on the Fed's current dilemma.
While the latest data showed the U.S. economy contracted at a 0.3% annualized rate last quarter, for example, most analysts feel that's not a clear signal of the economic direction because of distortions driven by trade policy; to Hammack, the economy has been resilient and the jury is still out on its future course.
"It is all premature to me -- I think everything is very fluid and I think we need to really wait and see how the data play out," she said.
Likewise, she and her fellow policymakers have noted the strength of the job market, where the unemployment rate stands at a low 4.2%, but also acknowledge the risks to the labor market as businesses begin thinking about the fallout from new tariff policies. If the impact of tariffs lifting prices proves to be limited and the economy weakens, "We'd want to really focus on the employment side of our mandate," she said.
The Fed this week left short-term interest rates in the 4.25%-4.50% range, where they have been since December. While tariffs raise the risk of both higher inflation and higher unemployment, Fed Chair Jerome Powell said, it’s not yet clear by how much, or for how long, or in what order, and with trade negotiations underway and the full scope of levies unknown, it’s too early to know how the Fed should respond.
Contacts in Hammack's district are laying contingency plans to shrink their workforce if demand weakens, she said.
But for now firms are hanging on to their workers after years of finding it hard to hire, she said. "People don't know which way it will settle out," she said.