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The American economy is absorbing some serious body blows right now. Tariffs are lifting import costs, oil prices are elevated, and fertilizer and petrochemical prices have followed suit. Yet Beth Hammack, president and CEO of the Federal Reserve Bank of Cleveland, is walking away from conversations with business leaders feeling something closer to cautious optimism than alarm.
In a June 2 address to the City Club of Cleveland, Hammack described an economy that is bending but not breaking under the weight of those pressures.
What businesses are actually saying
Hammack’s read on the economy is grounded in direct contact with executives across the Fourth Federal Reserve District, which covers Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia. What she is hearing is that companies have adapted their operations to absorb higher input costs and are still committing capital to growth.
Capital expenditures have picked up, with a notable concentration in artificial intelligence infrastructure and software. Consumer spending has remained intact as well.
Still, the picture is not uniformly comfortable. Hammack flagged significant cost pressures filtering through supply chains from tariffs on imported goods. Cleveland Fed surveys found that more than two-thirds of construction industry contacts expected to pass those tariff-related cost increases directly on to their customers.
The rate question hanging over everything
Hammack has been explicit that monetary policy may need to tighten further to get inflation under control, and she has supported multiple rate hikes during recent Federal Open Market Committee meetings.
As of mid-2026, the federal funds rate target range sits at 3.5% to 3.75%. Hammack’s position is that this level has not yet done enough to restrain economic growth, which is another way of saying she believes rates may need to go higher before the Fed can declare victory on inflation.
The unemployment rate near 4.3% in early 2026 gives the Fed some room to push. Since taking the Cleveland Fed job in August 2024, Hammack has established herself as someone who weighs inflation risks seriously and is not inclined to pause prematurely.
Why this matters beyond the Fourth District
The Cleveland Fed is not just a regional institution. Its president holds a rotating vote on the FOMC, meaning Hammack’s views carry direct weight in setting the interest rates that govern borrowing costs for every mortgage, car loan, and corporate credit line in the country.
The tariff dynamic adds a layer of genuine complexity for policymakers. Tariffs are simultaneously inflationary, because they raise the price of imported goods, and a potential drag on growth, because they raise costs for businesses and dampen trade.
The construction industry’s expectation of passing costs to customers is a particularly live wire for housing affordability. Materials costs are already a structural problem for new home construction. Layer tariff-driven cost increases on top, and the affordability math gets worse precisely when the Fed is also keeping mortgage rates elevated through its rate posture.
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