The Federal Reserve will need to continue raising interest rates somewhat to make sure inflation comes down to its 2% target, Cleveland Fed President Loretta Mester said.
(Bloomberg) — The Federal Reserve will need to continue raising interest rates somewhat to make sure inflation comes down to its 2% target, Cleveland Fed President Loretta Mester said.
“In order to ensure that inflation is on a sustainable and timely path back to 2%, my view is that the funds rate will need to move up somewhat further from its current level and then hold there for a while as we accumulate more information on how the economy is evolving,” Mester said Monday in remarks prepared for an event at the University of California, San Diego.
The US central bank’s Federal Open Market Committee elected at its last policy meeting in June to leave its benchmark interest rate unchanged following 10 straight increases, while also signaling it expected two more quarter-point hikes would be appropriate this year.
Mester said her own view “accords with” that projection. The FOMC next meets July 25-26 and is widely expected to resume rate increases at that meeting.
A July 7 report from the Bureau of Labor Statistics showed job growth slowed last month, though pay gains remained robust. Mester said the current rate of wage growth is still “well above the level consistent with 2% inflation given current estimates of trend productivity growth.”
Fed officials will also receive new inflation data this week with the Wednesday release of a monthly BLS report on consumer prices. Forecasters surveyed by Bloomberg expect it to show prices excluding food and energy advanced 0.3% last month, with the year-over-year rate of increase moderating to 5%, according to the median estimate.
Some policymakers, like Atlanta Fed President Raphael Bostic, have favored holding rates steady for now to assess the impact of policy so far on the economy. Bostic is scheduled to speak at an event later Monday.
“Waiting for that passive tightening to happen, though, risks allowing inflation to remain elevated for longer,” Mester said in her remarks.
Earlier Monday, Fed Vice Chair of Supervision Michael Barr said that inflation is still far too high. While interest rates are close to a sufficiently restrictive level to bring inflation back down to the Fed’s 2% target, the central bank has a bit more work to do, Barr said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.