Fed’s Mester casts doubt on the need for ‘shock’ interest rate hikes ahead

Loretta Mester of the Cleveland Federal Reserve stated Friday that while she is in favor raising rates to reduce inflation quickly, it should not disrupt economic recovery.

This means that there is a high likelihood that the Fed will support a rate increase of 50 basis points at its next meeting, and possibly a few additional afterward, but it won’t go above 75 basis points. as St. Louis Fed President James Bullard suggestedIn the previous week. Basis points are 0.01 percentage point.

Mester, a CNBC host said that her view was “we don’t need go there at the moment.”Closing BellIf asked by the host: Sara EisenAbout the 75-basis point move. “I would prefer to be more thoughtful and deliberate about the things we are planning.”

Mester indicated that she’d like the Fed to reduce its benchmark overnight rate of borrowing to 2.5% before the end this year. Mester, along with many Fed officials, considers the rate “neutral,” meaning it is neither stimulating nor suppressing growth.

Fed funds rates are the benchmark rate for consumer debt and set what banks will charge for overnight borrowing. The range currently being used is between 0.25% and 0.5%. a quarter-percentage point increaseMärz

Mester indicated that she would be supportive of a point in which there is an economic 50 basis point increase and perhaps a few more to achieve the 2.5% mark by year’s end. I believe that this is a better way. … This methodical approach is more appealing to me than the shock of 75 basis points [increase]. It’s not necessary for the purpose of our policy.”

These comments are in harmony with her words Chair Jerome Powell said Thursday.

Both statements by the officials were also in keeping with Fed communications. However, they met with a fresh round of selling on Wall StreetIn stocks as well as bonds

Mester called Fed’s pivot from historically high levels during the pandemic period of accommodation “the great refalibration in monetary policy.”

She stated that she was trying to communicate to the market where the economy is headed and the reasons why the monetary policy should move away from the extraordinary amount of accommodation required at the beginning of the pandemic.

Mester said, “Of course,” Mester explained that our goal was to continue the expansion while maintaining healthy labor markets.

CME Group. FedWatch tracker, market pricing currently indicates the Fed taking the funds rate a bit past where Mester indicated — possibly to 2.75% following anticipated hikes of 50, 75, 50, 25, 25 and 25 basis points respectively at its six remaining meetings through the end of the year.

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