Cleveland Federal Reserve President and CEO Loretta Mester gives her keynote address at the 2014 Financial Stability Conference in Washington December 5, 2014.
Gary Cameron | Reuters
Cleveland Federal Reserve President Loretta Mester said Friday that interest rates likely need to keep moving higher to get inflation back to acceptable levels.
In a CNBC interview, Mester said she sees the central bank’s benchmark interest rate having to rise above 5% and stay there for a while. The fed funds rate, which sets the level that banks charge each other for overnight borrowing but spills over into many forms of consumer debt, is currently in a target range of 4.5%-4.75%.
“I see that we’re going to have to bring interest rates above 5%,” she told CNBC’s Steve Liesman during a “Squawk Box” interview. “We’ll figure out how much above. That’s going to depend on how the economy evolves over time. But I do think we have to be somewhat above 5% and hold there for a time in order to get inflation on a sustainable downward path to 2%.”
Mester made news recently when she revealed that she was among a small group of Fed officials who, at the Jan. 31-Feb. 1 Federal Open Market Committee, wanted a half percentage point rate hike rather than the quarter-point move the panel approved.
Though she is a nonvoter this year on the rate-setting FOMC, she gets input into decisions. She said she’s not sure yet whether she will push for a half-point increase when the committee meets again in March.
“I don’t prejudge,” she said. “That’s a tactical decision that we make at the meeting.”
Many economists expect the Fed won’t be able to achieve its inflation goal without tipping the economy into a recession. GDP grew at a 2.7% in the fourth quarter of 2022 and is tracking at about a 2.5% rate in the first quarter of 2023, according to the Atlanta Fed.
Mester said she thinks that if the economy does contract, it won’t be a severe downturn. She also expressed hope that the Fed can achieve its goal without…
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