Beating inflation will probably require one more U.S. interest-rate hike and then going on hold for “a while,” Cleveland Federal Reserve Bank Loretta Mester said on Saturday, adding that she may reassess her earlier view that rate cuts could start in late 2024.
While she does not want policy so tight that the economy collapses, she told Reuters in an interview at the Fed’s conference in Jackson Hole, Wyoming, she wants to set it so that inflation reaches the Fed’s 2% goal by the end of 2025.
“We just don’t want it to keep drifting farther out,” she said.
Most Fed policymakers, including Mester, thought in June that they will probably be able to stop raising interest rates once they get the policy rate to the 5.5%-5.75% range, which is one quarter percentage point higher than it is currently.
They also thought that by next year the Fed will likely begin reducing interest rates again so that as inflation falls, they do not end up restricting the economy more than is needed.
See also: Fed’s Powell unsure of the need to raise interest rates further
Mester said on Saturday that in June she also had penciled in rate cuts in the second half of 2024, but that when she and other Fed policymakers submit fresh forecasts ahead of their September rate-setting meeting, that might change.
“I’m going to have to reassess that because, again, it’s going to be, how quickly do you think inflation is moving down?” she said.
Mester is not a voting member of the policy setting Federal Open Market Committee in 2023 but she will be in 2024.
Economic growth has been more robust than many have expected, and the labor market is still tight, and Mester does believe that the Fed’s rate hikes so far will moderate the strength of both.
Fed projections submitted in June show a median forecast for 2.1% inflation by the end of 2025. Forecasts submitted in September will show what they expect through 2026.
The Fed’s next and possibly last rate hike “doesn’t necessarily have to be September, but I think this year,” she said.
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