FED'S HAMMACK SAYS SMALLER, STEADIER RATE INCREASES GIVE ECONOMY TIME TO ADJUST

Cleveland Fed President Loretta Mester's counterpart in this headline, Fed official Hammack, is reported as arguing that smaller, steadier rate increases would give the economy time to adjust to tighter policy. The signal points to a shift in the pace of tightening rather than its direction, which matters for markets because the path of policy rates feeds directly into the discount rate applied to future cash flows and into the front end of the yield curve. A slower increment reduces the risk of abrupt repricing in short-dated Treasuries and money-market expectations, while keeping the cumulative tightening intact, so the transmission runs through the rate differential between U.S. and foreign government bonds and through the term premium embedded in longer maturities. Rate-sensitive segments such as long-duration Treasuries, growth equities with distant earnings, and housing-linked credit are most exposed to any change in the expected terminal rate, while the dollar tends to respond to relative rate expectations against major peers. Traders will watch the next Consumer Price Index release and the subsequent FOMC statement and dot plot for confirmation of whether incremental pacing

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