Fed’s Mester releases doubt on the need for ‘shock’ interest rate climbs ahead
Key takeaways:
- Cleveland Fed President Loretta Mester stated she favors increasing interest rates by 50 basis points, maybe numerous times, but wouldn’t prefer going higher.
- Mester named the Fed’s pivot from the historically high housing levels during the pandemic period “the great recalibration of economic policy.”
Cleveland Federal Reserve President Loretta Mester said Friday she’s in favor of increasing interest rates fast to get down inflation, but not so quickly as to disrupt the financial recovery.
That means a substantial chance of supporting a 50 basis point hike at the next Fed meeting and maybe a few more after, but not to 75 basis points, as St. Louis Fed President James Bullard told earlier this week. A basis point is 0.01 percentage points.
“My view is we don’t require to go there at this point,” Mester stated on CNBC’s “Closing Bell” when questioned by host Sara Eisen regarding the 75-basis-point move. “I’d rather be more reflective and purposeful regarding what we intend to do.”
Mester said she would like to see the Fed receive its benchmark overnight borrowing rate to 2.5% by this year, which she and numerous Fed officials see as being “neutral” or neither prompting nor stopping growth.
The fed funds rate sets what banks charge each other for overnight borrowing while also acting as a benchmark for multiple forms of customer debt. It presently is set in a range between 0.25%-0.5%, following a quarter-percentage-point rise in March.
“I would help at this point where the economy is a 50 basis point upgrade and perhaps a few more to reach that 2.5% level by the end of the year,” Mester stated. “I think that’s a better way. I favor this systematic process rather than a shock of a 75 basis point [increase]. I don’t think it’s required for what we’re trying to do with our policy.”