(Bloomberg) -- Federal Reserve Bank of Cleveland President Loretta Mester repeated that she thinks the US central bank needs to get rates above 4% by early 2023 and leave them there for some time to cool the hottest inflation in nearly 40 years.
Mester also reiterated that she does not expect the Fed to cut rates next year, noting that policy makers need to keep inflation expectations from becoming unanchored.
“In formulating my monetary policy views, I will be guarding against declaring victory over the inflation beast too soon,” Mester said Wednesday during remarks prepared for an MNI webcast.”
The Fed official, who votes in monetary policy this year, said she would like to see several months of declines in month-over-month inflation readings before concluding that inflation has peaked.
She also said she will be carefully watching medium and longer term inflation expectations for signs on whether high inflation is becoming embedded in the economy. “At that point, it would be considerably more difficult and more costly to bring inflation down,” she said.
Fed officials lifted rates by 75 basis points in July and June and could consider a similar move, or a 50 basis point increase, when they meet on Sept. 20-21.
An employment report for August showed that jobs growth moderated and the unemployment rate rose to 3.7% as more workers entered the labor force. If participation continues to rise, it could boost the Fed’s odds of achieving a “soft landing” for the US economy and lessen the need for more aggressive tightening.
But policy makers will also receive another update on the consumer price index on Sept. 13, a report that economists and officials say will be important in determining the size of this month’s rate hike.
Mester said the size of a rate increase at any particular Fed meeting, as well as where rates peak, will depend on the outlook for inflation.
The central bank is also reducing its balance sheet by up to $95 billion a month, a process that should remove accommodation. Mester repeated that she would support selling mortgage-backed securities at some point to help return the Fed’s portfolio to one that invests primarily in Treasuries.
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