President and CEO of the Federal Reserve Bank of Cleveland, Loretta Mester appears on “The Exchange” on March 7, 2024.
CNBC
Cleveland Federal Reserve President Loretta Mester said Tuesday she still expects interest rate cuts this year, but ruled out the next policy meeting in May.
Mester also said the long-term trajectory is higher than policymakers previously thought.
The central bank official highlighted progress on inflation as the economy continued to grow. If this continues, rate cuts are likely, although she gave no indication of the timing or magnitude.
“I still think the most likely scenario is that inflation continues on its downward trajectory to 2% over time. But I need more data to bolster my confidence,” Mester said in a speech prepared for a speech in Cleveland.
Additional inflation figures will provide clues as to whether some higher-than-expected figures this year were either temporary blips or a sign that the rise in inflation “is coming to a halt,” he said. she added.
“I don’t think I will have enough information between now and the next FOMC meeting to make that decision,” Mester said.
The remarks come nearly two weeks after the Federal Rate-Setting Committee again voted to keep the key overnight funding rate in a range between 5.25% and 5.5%, where it has been since July 2023. The post-meeting statement echoed Mester’s remarks. that the committee needs to see more evidence that inflation is moving toward the 2% target before it begins cutting rates.
Mester’s comments appear to rule out a cut at the April 30-May 1 FOMC meeting, a sentiment also reflected in market prices. Mester is a voting member of the FOMC but will leave in June after serving the 10-year limit.
Futures traders expect the Fed to begin easing its measures in June and reduce them by three-quarters of a percentage point by the end of the year.
While considering rate cuts, Mester said she believes the long-term federal funds rate will be higher than the long-held expectation of 2.5%. Instead, she sees the so-called neutral or “r*” rate at 3%. The rate is considered the level where the policy is neither restrictive nor stimulative. After the March meeting, the long-term rate projection rose to 2.6%, indicating that other members are leaning higher.
Mester noted that the rate was very low when the Covid pandemic hit and gave the Fed little room to stimulate the economy.
“At this stage, we seek to adapt our policy well to economic developments in order to avoid having to act aggressively,” she said.
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