Loretta Mester, President and CEO of the Federal Reserve Bank of Cleveland, appeared on “The Exchange” on March 7, 2024.
CNBC
Cleveland Fed President Loretta Mester said on Tuesday she still expected to cut interest rates this year but ruled out holding the next policy meeting in May.
Mester also said the longer-term path was higher than policymakers had previously expected.
Central bank officials noted that while the economy continued to grow, there was also progress on the inflation front. If this persists, a rate cut could come, although she did not provide any guidance on timing or magnitude.
“I still think the most likely scenario is that inflation will continue to fall to 2% over time,” Mester said in remarks prepared for the Cleveland address. “But I need to see more data to reinforce that. My confidence.”
She added that additional inflation data will provide clues as to whether some of this year’s higher-than-expected data points are a blip or a sign that inflation progress has “stalled.”
“I don’t anticipate that I will have enough information by the time the FOMC meets next to make a decision,” Mester said.
Nearly two weeks ago, the rate-setting Federal Open Market Committee voted again to keep its key overnight borrowing rate in a range of 5.25%-5.5%, where it has been since July 2023. The statement after the meeting echoed Mester’s remarks that the committee needs to see more evidence that inflation is heading towards its 2% target before it starts cutting rates.
Mester’s comments seemed to rule out the possibility of a rate cut at the FOMC meeting from April 30 to May 1, and this sentiment was also reflected in market pricing. Mester is a voting member of the FOMC but will leave his post in June after serving for 10 years.
Futures traders expect the Fed to begin easing policy in June and cut interest rates by three-quarters of a percentage point by the end of the year.
While seeking a rate cut, Mester said she believes the long-term federal funds rate will be higher than the long-term forecast of 2.5%. Instead, she believes the so-called neutral or “r*” rate is 3%. This rate is considered a level at which policy is neither restrictive nor stimulating. After the March meeting, long-term interest rate forecasts were revised upward to 2.6%, indicating that other members were leaning higher.
Mester noted that when the coronavirus outbreak hit, interest rates were very low, giving the Fed little room to maneuver to boost the economy.
“Right now, we are looking to tailor our policies to economic developments so that we avoid drastic action,” she said.
