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Fed Hiking Pace From September Hinges on Inflation, Mester Says

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© Bloomberg. Loretta Mester, president and chief executive officer of the Federal Reserve Bank of Cleveland, gestures while speaking during a Bloomberg Television interview in London, U.K., on Wednesday, July 3, 2019. U.S. President Donald Trump’s picks to join the Federal Reserve won’t have big a political influence on monetary policy, according to Mester.
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(Bloomberg) — Federal Reserve Bank of Cleveland President Loretta Mester said she favors raising interest rates by 50 basis points this month and next but cautioned that pace could speed up or slow down from September, based on what happens with inflation. 

“If by the September FOMC meeting, the monthly readings on inflation provide compelling evidence that inflation is moving down, then the pace of rate increases could slow,” Mester said Thursday, referring to the policy-setting Federal Open Market Committee. “But if inflation has failed to moderate, then a faster pace of rate increases could be necessary,” she told a virtual event hosted Philadelphia Council for Business Economics, according to her prepared remarks.

Fed officials raised their benchmark interest rate by a half point in May and signaled that similar rate hikes are coming in June and July as they work to expeditiously move rates to a level that neither stimulates, nor slows, the economy. Minutes from the Fed’s May meeting showed that officials are more open minded about what action to take in September, based on what happens with inflation. 

Atlanta Fed President Raphael Bostic said last month that the central bank could consider taking a pause in September if inflation comes down more quickly than expected over the summer. But earlier Thursday, Fed Vice Chair Lael Brainard said it would be “very hard” to see the case for such a pause while policy makers clamp down on the strongest inflation in decades.

Mester, who votes in monetary policy decisions this year, said she would need to see “compelling evidence” that inflation is retreating, including several months of declining readings, before she could conclude that inflation has peaked. “I will need to see several months of sustained downward monthly readings of inflation.  I have not seen that yet,” she said.

Officials are also starting to unwind the Fed’s $8.9 trillion balance sheet, a process that should push rates higher. Fed officials have their next policy meeting in two weeks on June 14-15.

©2022 Bloomberg L.P.

Fed Hiking Pace From September Hinges on Inflation, Mester Says

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