Cleveland Fed President Loretta Mester, who this year votes on the Federal Open Market Committee (FOMC), said Wednesday that the Fed needs to raise interest rates by early next year. above 4%, and then stay there for a while to cool scorching inflation to the Fed’s target level. In addition, she also predicted that the Fed will not cut interest rates until at least 2023.
“My current view is that it will be necessary to raise the federal funds rate to a little over 4 percent early next year, and stay there,” Mester said in a prepared speech today. There will be no lowering of the federal funds rate target next year.”
Mester said the Fed cannot be wishful thinking. It is still too early to conclude that inflation has peaked. If monetary policy goes stop and go, it will be costly for households and businesses to bring inflation back to 2%. The target level requires a lot of perseverance, and the rate she mentioned is well above the current range of 2.25%-2.5% for the benchmark federal funds rate.
It is worth noting that Mester’s view of “maintaining high interest rates for a while” is consistent with Fed Chairman Powell and yesterday’s New York Fed President and FOMC permanent voting member John Williams (John Williams). Mester also said real interest rates, and the gap between the federal funds rate and inflation, need to turn positive, once more echoing Williams’ sentiment.
Mester also noted that higher interest rates are expected to slow economic growth, which she sees as “well below 2 percent” with rising unemployment and financial markets still uncertain. She expects inflation to fall to the 5%-6% range this year and then approach the Fed’s target over the next few years.
Although Mester still spoke hawkishly this time, it also contained a dovish signal. She said that the Fed does not necessarily have to continue raising interest rates until the inflation rate reaches the 2% target, but policymakers must remain vigilant. Those hoping for a rate cut backed down.
Before the deadline, according to data from the CME Group FedWatch Tool, the probability of the Fed raising interest rates by 2 yards (50 basis points) at the September meeting was 31.5%, and the probability of raising interest rates by 3 yards (75 basis points) was 68.5%. big.
