Cleveland Federal Reserve President Loretta Mester believes that in order to bring inflation levels back to acceptable rates, interest rates need to continue rising. Mester previously called for a 0.5% rate hike at the last meeting, but is uncertain whether she will advocate for that again in the future.
In an interview with CNBC, Federal Reserve Bank of Cleveland President Loretta Mester indicated that she believes the central bank’s benchmark interest rate will need to exceed 5% and remain at that level for an extended period of time. Currently, the fed funds rate, which influences various forms of consumer debt, is in a target range of 4.5%-4.75%.
CNBC’s Steve Liesman on “Squawk Box,” the Fed Cleveland President Mester expressed her belief that interest rates must be raised above 5% to bring inflation down to a sustainable level of 2%. The exact amount above 5% will depend on how the economy performs in the future. The speaker emphasized the need to maintain the elevated interest rates for a period to ensure that inflation remains in check.
Mester, a Federal Reserve official, recently disclosed that she was part of a minority group within the Federal Open Market Committee that called for a 0.5% increase in interest rates at the Jan. 31-Feb. 1 meeting. However, the majority of the committee voted in favor of a 0.25% rate hike.
According to some economists, the Federal Reserve may struggle to achieve its inflation target without causing a recession. The Gross Domestic Product (GDP) expanded by 2.7% in the fourth quarter of 2022, and in the first quarter of 2023, it is projected to grow at a rate of about 2.5%, as per the Atlanta Fed’s estimates.
“I do think that in this labor market, we can have both. We can have a healthy labor market and we can get back to price stability,” Mester said. “But I also think it’s really important to know that if we want to sustain healthy labor markets over time, we have to get back to price stability.”
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