Cleveland Fed President Loretta Mester commented on rates and inflation again today as markets brace for the latest US jobs report. “I would pencil in going a bit above four as appropriate,” she said. In the background inflation is heading for negative month to month prints as oil continues to slide after a series of bearish EIA storage numbers. What will the talking heads spin there? On that Mester said need to see several months of monthly changes moving down on inflation. We’ll bring rates back down once inflation gets closer to our 2% goal. She added needs to raise rates and then hold them there for awhile
Cleveland Fed President Loretta Mester on Thursday when speaking to the at the Economic Club of Pittsburgh, commented on rates and inflation. These are interesting in light of the recent weak inflation numbers and the U.S. dollar.
“Interest rates continue to rise this year and into next year through the first half and maybe by then we can pause and we can start bringing them back down,” Mester said.
Mester is one of the hawkish regional presidents and a voting member of the FOMC. Keep that in mind when assessing her rationale.
Highlights
- We’re are not in recession right now
- Recession risks have gone up though
- There is still path to soft landing
- We have to take supply constraints as a given as they are likely to remain for some time
- I don’t use yield curve as a strong indicator of where the economy is going
- Given size of balance sheet, we should discuss selling some MBS
- policy is working on the demand-side
- but that moderating demand is not yet impact inflation
- needs to see several months of inflation coming down
“It’s not unreasonable to think we might have to do a 75 (basis point move) but I can imagine it could be a 50. We’ll just have to look at the data as it comes in,” Mester said.
- Firms still struggling to find workers
- Three rate hikes per year appropriate to avoid overheating
- My assessment is that the conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2% on a sustained basis
- Business contacts tell me not looking for as many workers as before
- But these are only nascent signs, labor market still quite strong
- Need to see several months of monthly changes moving down on inflation
- We will need to raise rates and then hold them there for awhile
- We’ll bring rates back down once inflation gets closer to our 2% goal
Inflation where we are;
From The Traders Community Research Desk