Published: November 16, 2023 2:44 pm ET
Cleveland Federal Reserve President Loretta Mester said Thursday that the focus in financial markets about interest rate cuts is premature.
“Easing monetary policy is not part of the conversation right now,” Mester said in an interview on CNBC.
“It’s not really about cutting rates,” she said. “Now it’s really about how long we’re going to be there…
Cleveland Federal Reserve President Loretta Mester said Thursday that the focus in financial markets about interest rate cuts is premature.
“Easing monetary policy is not part of the conversation right now,” Mester said in an interview on CNBC.
“It’s not really about cutting rates,” she said. “Now it’s really about how long we stay in the restrictive stance, and given what’s happening in the economy, we’ll probably have to go even higher than that.”
Mester said he still needed reassurance that inflation was coming down “on time.”
“For example, I would be concerned if we were in a situation where inflation stopped at 3%,” he said.
In the wake of soft consumer inflation data released on Tuesday, markets have pushed back the first rate cut to March and are now pricing in a softening of 100 basis points next year.
Asked if the market was crazy about the move, Meister demurred.
“He has a vision. We have our own perspective,” she said. “Our job is to get the vast amount of data out there, and we’re not going to react to one data release.”
The Cleveland Fed chair said she does not support the adoption of “triggers” in economic data that would have to be triggered before the Fed can lower its benchmark rate. She was referring to the Fed’s decision in 2012 to keep interest rates near zero until unemployment improved and inflation increased.
During this period, as the economy recovered from the Great Recession, financial markets went through a period of expectations for the Fed to raise rates near zero. High market rates actually weakened the economy. So the Fed committed to keeping rates near zero as long as the unemployment rate was above 6.5%.
This time is different, Meister said.
“That’s my feeling on this [current economic cycle]“We just need to see evidence that inflation is moving downwards,” she said. “It would be hard to put a trigger or that kind of precision on one or two data points.”
The Fed has kept its benchmark rate between 5.25% and 5.5% since late July. Fed officials will meet again from December 12 to December 13 to set interest rate policy.
Overall, Meister said he was pleased with October’s consumer price index data but said it was not a clear-cut report.
Stock DJIA SPX was lower in afternoon trading Thursday, while the yield on the 10-year Treasury note BX:TMUBMUSD10Y fell to 4.45%.
Source: www.marketwatch.com
