Central Banks

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Cleveland Fed President Loretta Mester on Wednesday when speaking to the Community Bankers Association of Ohio in Cincinnati commented on rates and inflation. These are interesting in light of the recent weak inflation numbers and the tumbling U.S. dollar.

Mester is one of the hawkish regional presidents and will be a voting member of the FOMC next year. Keep that in mind when assessing her rationale.

Highlights

  • 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
  • Inflation weakness due to 'special factors' not a general downward trend
  • It is important to notice that the gradual path I anticipate does not entail an increase at each FOMC meeting
  • May take a couple months to see uptick in inflation
  • Expects further hikes and a start of the runoff as economy grows somewhat above 2%
  • Payroll growth likely to slow a bit from current pace

Inflation where we are;

The PCE index, which the Fed’s preferred inflation gauge, was 1.4% in June. This coming off from down from 2.2% earlier in the year.

The core rate is down to 1.5% in June from 1.9% at the start of the year.

Various Fed governors, including Janet Yellen have blown each month off as special circumstances from mobile phones to prescriptions. What will it be next month?

From The Traders Community Research Desk

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