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Fed's Mester notices a benchmark rate exceeding 4% and no scrapes nearly through 2023

Fed's Mester notices a benchmark rate exceeding 4% and no scrapes nearly through 2023

September 2, 2022: -On Wednesday, Cleveland Federal Reserve President Loretta Mester said that she noticed interest rates increased considerably higher before the central bank slacks off in its fight firm inflation.

Mester, a member who votes on the rate-setting Federal Open Market Committee this year, said she said that benchmark rates increasing above 4% in the coming months. That’s above the target range of 2.25%-2.5% for the federal funds rate, setting what banks charge each other for overnight take out but is tied to consumer debt instruments.

“My current view is that it will be necessary to move the fed funds rate up to somewhat more than 4 percent by an early coming year and hold it there,” she added in prepared remarks for a speech in Dayton. “I do not expect the Fed cuts that the fed funds rate target next year.”

In line with that, Mester states that rates would remain elevated “for some time,” a phrase used in the latest days by Fed Chairman Jerome Powell and New York Fed President John Williams. She added that accurate rates, or the distinction between the fed funds rate and inflation, will need to “move into positive territory.”

This year, the Fed is growing speeds four times for a total of 2.25 percentage points. Markets are pricing a third consecutive 0.75 percentage point increase at the September meeting and looking for rate cuts to start in 2023.

Mester added that she anticipates the rate increases to slow economic growth, that seeing as running “less than 2%” while the unemployment rate increases and financial markets remain volatile. She is anticipating inflation to decrease to 5%-6% this year and then get closer to the target in a few years.

In one concession to those looking for lower rates, she added that she is not thinking the Fed necessarily will have to keep increasing rates until inflation reaches the central bank’s 2% goal. But she told policymakers must remain vigilant.

“It would be a mistake to announce victory more than the inflation beast. Doing so would put us back in the stop-and-go monetary policy world of the 1970s, that were costly to households and businesses,” she said.

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