Cleveland Fed's Loretta Mester sees Fed hiking key rate to over 4%

Aug. 26, 2022 2:34 PM ETBy: Liz Kiesche, SA News Editor15 Comments

Cleveland Federal Reserve President Loretta Mester Appears on Fox Business Network

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"I think it was a very strong message, and I'm certainly aligned with that," Cleveland Fed President Loretta Mester said, referring to Federal Reserve Chair Jerome Powell's speech at Jackson Hole, Wyoming, on Friday.

"We're all in and we're resolute about it," she in a Bloomberg Television interview. "I think the message is strong and right."

More data came in Friday morning that shows inflation softened some last month. "The July inflation report was welcome news, but we really can't let wishful thinking substitute for compelling evidence and so we need to see a lot more data."

She expects the federal funds target range will have to climb to over 4% and remain there next year in order to get inflation under control. She believes the Fed's next rate increase will be 50 or 75 basis points. (The federal funds rate target range is now at 2.25%-2.50%).

She pointed to services inflation as still a concern. "Rents are still very elevated," she said. Economists often refer to services inflation considered to be "sticky," or less likely to decline quickly. She would be cautious in declaring when inflation has peaked.

The rise in interest rates is meant to slow the economy to bring demand more in line with supply, but it may not be a "prolonged or deep slowdown." If the slowdown doesn't happen, it will be more painful in the long-run if the Fed doesn't bring down inflation, she said.

Earlier Friday, Atlanta Fed's Raphael Bostic said he's leaning toward a 50-bp rate hike at the Fed's September meeting.

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