Cleveland Federal Reserve Chairman Loretta Mester said on Friday that she was in favor of raising interest rates quickly to reduce inflation, but not so fast as to disrupt the economic recovery.
This means a high probability of supporting the increase in interest rates by 50 basis points at the next Fed meeting and maybe a few more after that, but not to reach 75 basis points, as suggested by Fed President James Bullard in St. Louis. early this week. The base point is 0.01 percentage points.
“My own opinion is that we don’t need to go there right now,” Mester told CNBC’s Closing Bell when asked by host Sarah Eisen about the 75-point move. “I prefer to be more careful and deliberate about what we plan to do.”
Mester said she would like to see the Fed raise its benchmark lending rate to 2.5% by the end of this year, a rate she and many Fed officials consider “neutral” or neither stimulating nor stifling growth. .
The interest rate of federal funds determines what banks charge each other for overnight loans, while serving as a benchmark for many forms of consumer debt. It is currently set in the range of 0.25% -0.5%, after increasing by a quarter of a percentage point in March.
“I would support at a time when the economy is growing by 50 basis points and maybe a few more to reach that level of 2.5% by the end of the year,” said Mester. “I think this is a better way … I prefer this methodical approach, not a shock of 75 basis points [increase]. I don’t think it’s necessary for what we’re trying to do with our policy. “
Her comments matched what President Jerome Powell said on Thursday.
Although the statements of the two employees were also in line with the latest Fed announcements, they coincided with a new round of Wall Street sales of both stocks and bonds.
Mester called the Fed’s policy of historically high levels of adjustment during the pandemic era “the great over-calibration of monetary policy.”
“We are trying to inform the markets where we see the economy going and why monetary policy needs to move away from this truly exceptional level of housing that was needed at the start of the pandemic,” she said.
“Of course, our goal is to do this in a way that supports enlargement and maintains healthy labor markets,” Mester added.
According to the CME Group’s FedWatch tracking tool, market pricing is currently showing that the Fed is accepting interest rates on funds a little earlier than those indicated by Mester – probably up to 2.75% after expected increases of 50, 75, 50, 25, 25 and 25 basis points respectively for their six remaining meetings by the end of the year.