Loretta Mester, president of the Federal Reserve Bank of Cleveland, said there was no “compelling” reason to wait for another interest-rate hike, in a recent interview.
Mester told the Financial Times in a recent interview that more must be done to bring U.S. inflation under control, rather than await for more economic results.
Some Fed policymakers have suggested that they would skip another rate hike in June in order to assess the impact of the central bank’s policy on inflation, before raising rates again at a later date.Ohers have indicated the central bank does not need to tighten the money supply any further.
Fed Official Says Debt-Limit Agreement Relieves Uncertainty on US Economy
Mester, who will not become a voting member of the policy-setting Federal Open Market Committee until next year, told the Financial Times, “I don’t really see a compelling reason to pause.”“I would see more of a compelling case for bringing the rates up and then holding for a while until you get less uncertain about where the economy is going.”
An agreement this weekend between the Biden administration and Republican leaders in the House on the U.S. borrowing limit “relieve[s] a big piece of uncertainty about the economy,” said Mester.The House Rules Committee passed legislation advancing the debt limit deal, but it must be approved by both chambers of Congress.
However, the bill needs to be passed before the deadline of June 5, the day when the Treasury Department has warned that the federal government could run out of money to pay off its debts—for the first time in its history.
Mester Remains Disappointed Over Inflation Rate Results
Mester said that the Fed should only pause rate hikes when the risks of doing too little were evenly balanced with doing too much, she told the Financial Times.
She said that the only reason for skipping a rate increase would be when monetary tightening was necessary in an event of extreme market volatility or during a crisis, such as a potential debt default.The Cleveland Fed president said she was open to being swayed by the next employment report on June 2 and the latest inflation results, which are expected to be released before the next Fed policy meeting on June 13–14.
Mester, who is a policy hawk on inflation, told the Financial Times that she was disappointed at the progress in containing inflation.
Debate Over a Rate Hike in June Divides Policymakers
In March, most Fed officials declared that current interest-rate levels would mark the peak of the tightening campaign, but prices then rose again in April.The data sparked a recent debate among policymakers over whether the Fed had done enough to bring inflation down, with several criticizing a need for a pause next month.
“We’re getting to the real hard part here of how we assess trade-offs,” Mester said, adding that “different policymakers will have different views about how they are assessing things.”
Lorie Logan, president of the Federal Reserve Bank of Dallas, and Fed governor Michelle Bowman recently argued that inflation data did not show enough of a decline to pause rate hikes.
James Bullard, president of the Federal Reserve Bank of St. Louis, and one of its leading hawks, said he would keep an “open mind” going into the next policy meeting in June, but leaned toward another rate rise.
However, Fed chairman Jerome Powell recently hinted that he supported foregoing a pause in June and has also argued the recent banking crisis would tighten financial conditions and slow the economy anyway.
Most economists surveyed by Bloomberg predicted that it could take until 2025 for the Fed to reach its inflation target of 2 percent, which is roughly in line with the Fed’s timeline in March.
The respondents said they did not expect any rate cuts until 2024 because they believe that inflation is unlikely to decline far enough before then.
