The Fed’s Master casts doubt on the need for ‘shock’ rate hikes ahead

Cleveland Federal Reserve President Loretta Mester said Friday she is in favor of raising interest rates quickly to bring inflation down, but not so fast as to disrupt the economic recovery.

That means a high probability of backing a 50 basis point rate hike at the next Fed meeting and maybe a few more after, but not going to 75 basis points, as St. Louis Fed President James Bullard proposed earlier this week. A base point is 0.01 percentage point.

“My own view is that we do not need to go there at this point,” Mester said on CNBC’s “Closing Bell” when host Sara Eisen asked about the 75 basis point move. “I would rather be more thoughtful and more aware of what we plan to do.”

Mester said she would like the Fed to raise its benchmark overnight rate to 2.5% by the end of this year, a rate that she and many Fed officials see as “neutral” or neither stimulating nor repressive growth. .

The Fed funds rate determines what banks charge each other for day-to-day loans, while also serving as a benchmark for many types of consumer debt. It is currently set in the range of 0.25% -0.5% after a quarterly percentage point increase in March.

“I would support at this point where the economy is an increase of 50 basis points and maybe a few more to reach that level of 2.5% before the end of the year,” Mester said. “I think it’s a better way … I prefer this methodical approach rather than a 75 basis point shock [increase]. I do not think it is necessary for what we are trying to do with our policy. “

Her comments are in line with what President Jerome Powell said Thursday.

Although the statements of both officials were also in line with recent Fed communications, they coincided with a fresh round of sales on Wall Street in both equities and bonds.

Master called the Fed’s political focal point from the historically high levels of accommodation during the pandemic “the great recalibration of monetary policy.”

“We are trying to let the markets know where we see the economy going and why monetary policy needs to be moved away from the real extraordinary level of accommodation that was needed at the beginning of the pandemic,” she said.

“Of course, our goal is to do it in a way that sustains expansion and maintains healthy labor markets,” Mester added.

According to the CME group’s FedWatch tracker, market prices are currently indicating that the Fed is taking the fund rate a step further, where Mester indicated – possibly to 2.75% after expected increases of 50, 75, 50, 25, 25 and 25 basis points, respectively, at its six basis point. remaining meetings until the end of the year.

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