Growing evidence that high inflation is finally easing shows that the Federal Reserve’s sharp interest rate hikes are working as intended, says Loretta Mester, a key Fed policymaker. inflation us kprc2 click2houston
. But further rate hikes are still needed, she says, to decisively crush the worst inflation bout in four decades.
“She has been ahead of the curve on a lot of the arguments that have pushed the Fed to act more hawkishly over the past year," said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. The Fed's policymakers are grappling with two conflicting risks: That they'll fail to raise rates high enough and thereby allow high inflation to persist, or that they'll raise rates too high and tip the economy into recession.
Mester, who has been president of the Cleveland Fed for eight years, didn't say how large a rate hike she favored when the Fed’s next meeting ends on Feb. 1. Most economists expect the central bank to announce a smaller quarter-point hike. But Mester noted that the economy and the financial markets “were able to handle” the half-point hike that the Fed carried out in mid-December.
Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said that quarter-point hikes “will be appropriate going forward.” Two other Fed regional bank presidents — Susan Collins of the Boston Fed and Raphael Bostic of the Atlanta Fed — also said they were leaning toward a quarter-point increase.
On Wall Street, though, investors have signaled that they don't expect the Fed to raise rates as high as Mester prefers. Futures prices suggest that the market thinks the central bank will implement two more quarter-point hikes and then stop.
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