Several Fed officials recently re-consolidated Fed Chairman Jerome Powell’s stance on raising interest rates by 2 yards each at the next two meetings, but Cleveland Fed Bank President Loretta Mester (Loretta Mester) Made a hawkish speech, saying she would never rule out a 3-yard rate hike until inflation was resolved.
The Fed raised the federal funds rate by 2 yards to a range of 0.75% to 1% last week, and announced that it would shrink its balance sheet from June. After the meeting, Powell hinted that similar actions will be taken at the next two meetings.
Mester said Tuesday that the Fed’s decision to raise interest rates by 2 yards in each of the next two meetings is entirely justified as the Fed battles inflation, echoing comments from New York Fed President John Williams. view.
“We’re rapidly cutting easing, which gives us some room to raise rates by 2 yards in the next few meetings,” Williams told a seminar in Germany on Tuesday.
However, Mester said in an interview that a three-yard rate hike (75 basis points) would never be ruled out, and that if inflation has not cooled down in the second half of the year, the central bank may need to speed up.
The Fed’s preferred inflation gauge, the personal consumption expenditures price index (PCE), rose 6.6% on year in March, amid fears that price pressures might intensify amid the Russia-Ukraine conflict and a new round of China’s coronavirus lockdowns.
Mester admitted that this will be a challenge because many of the supply-side factors currently driving inflation are not affected by monetary policy, but he also promised that the Fed will use policy tools to try to align supply and demand.
Mester is a voting member of the Federal Open Market Committee (FOMC) this year, and Williams is a permanent FOMC voting member.