Fed’s Mester Suggests Interest Rates Should Stay High for Longer

view original post

(Bloomberg) — Federal Reserve Bank of Cleveland President Loretta Mester said policymakers need more data to be confident inflation is on a path to the central bank’s 2% target, and suggested officials should keep interest rates elevated for longer to make it happen.

Most Read from Bloomberg

Monetary policy is well positioned at the moment, Mester reiterated, adding she expects price growth to cool at a slower pace than last year now that there are fewer improvements from supply-chain disruptions.

“Incoming economic information indicates that it will take longer to gain that confidence,” Mester said Thursday in remarks prepared for an event in Wooster, Ohio. “Holding our restrictive stance for longer is prudent at this point as we gain clarity about the path of inflation.”

The Cleveland Fed chief said earlier this week that policy was in a “good place” and it was too soon to say progress on inflation had stalled, a sentiment she repeated Thursday.

“Our current monetary policy stance puts us in a good position for managing the risks that could be realized,” she said in her remarks. “Moving rates down too soon or too quickly without sufficient evidence to give us confidence that inflation is on a sustainable and timely path back to 2% would risk undoing the progress we have made on inflation.”

Mester, who votes on policy decisions this year, is stepping down at the end of June when her term expires. Fed policymakers will meet next on June 11 and 12.

Data released on Wednesday showed a measure of underlying US inflation ebbed in April for the first time in six months, providing some progress in the direction Fed officials would like to see before reducing rates. The core consumer price index, which excludes food and energy costs, rose 0.3% from March after three months of greater than expected readings, Bureau of Labor Statistics figures showed.

Mester said the report offered a “welcome tick down” in monthly inflation, but she and other central bankers have said they want to see more data to be confident inflation is headed to the Fed’s 2% goal.

Officials kept their benchmark rate steady earlier this month at a target range of 5.25% to 5.5% — the same level it’s been at since July. Fed Chair Jerome Powell said Tuesday that officials will “need to be patient and let restrictive policy do its work.”

Richmond Fed President Thomas Barkin echoed that view earlier Thursday, saying the Fed needs to keep borrowing costs high for longer to ensure inflation is on track to its target, citing higher prices in the services sector.

“I still think there’s just a lot of movement on the services side and it’s going to take a little bit of time,” Barkin, who also votes on policy decisions this year, said in an interview on CNBC. “I do believe we are on the right path here.”

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.