Interest rates

Fed Mester Says No Progress on Inflation, So Interest Rates Need to Rise

With little or no progress made in reducing inflation, the Federal Reserve must continue to raise interest rates, Cleveland Fed Chair Loretta Mester said Tuesday.

“At some point, you know, as inflation goes down, my risk calculation will also change and we’ll either want to slow rate increases or hold them for a while and assess the cumulative impact on what we did,” Mester told reporters after a speech to the Economic Club of New York.

“But at this point my concerns rest more on – we haven’t seen any progress on inflation, we’ve seen some moderation – but in my view that means we still need to go a bit further,” Mester said.

In his speech, the Cleveland Fed chairman said the central bank should be wary of wishful thinking about inflation that would lead the central bank to pause or reverse course prematurely.

“Given current economic conditions and the outlook, in my view, at a time when the most significant risks come from too little tightening and the persistence of very high inflation and its embedding in the economy,” Mester said.

She said she thinks inflation will be more persistent than some of her colleagues.

As a result, his preferred path for the Fed’s benchmark rate is slightly above the Fed’s median dot-plot forecast, which indicates rates will reach a range of 4.5% to 4.75% d here next year.

Mester, who is a voting member of the Fed’s interest rate committee this year, reiterated that she expects no cut in the Fed’s benchmark rate next year. She stressed that this forecast is based on her current reading of the economy and that she will adjust her views based on economic and financial news for the outlook and risks surrounding the outlook.

Opinion: The Fed misses signals from the main inflation indicators

Mester said she doesn’t rely solely on government data on inflation, as some of it is historical. She said she supplements her research with interviews with business contacts about their pricing plans and uses some business models.

The Fed is also helped by some real-time data, she added.

“I don’t see the signs that I would like to see on inflation,” she added,

Mester said she didn’t see any “big outstanding risks” in terms of financial stability issues.

“There is no evidence that there is currently a disorderly functioning of the market,” she said.

U.S. stocks were mixed on Tuesday afternoon with the Dow Jones Industrial Average DJIA,
+0.12%
a bit up but the S&P 500 in negative territory. The yield of the 10-year Treasury note TMUBMUSD10Y,
3.936%
up to 3.9%