Loretta Mester, a Bloomberg Federal Reserve Bank of Cleveland, backed raising interest rates by half percentage points at the central bank's next policy meeting in order to tamp down surging inflation.
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Mester said Friday in prepared remarks for a virtual appearance at the International Research Forum on Monetary Policy that unless there are some big surprises, I expect it to be appropriate to raise the policy rate another 50 basis points at each of our next two meetings.
Chair Jerome Powell told reporters that similar moves were on the table at their next two meetings in June and July, as central bankers raised interest rates by a half point at their meeting earlier this month.
Mester, who votes for monetary policy this year, said that once they get to September, the policy-setting Federal Open Market Committee should assess if inflation needs to be restrained, which is running at the highest level in 40 years.
If inflation isn't moderated, the pace of rate increases could slow but if inflation doesn't moderate, a faster pace of rate increases may be necessary, according to Mester.
She said she d like to see several months of sustained declines in inflation readings before concluding that prices have peaked.
Chair Jerome Powell said on Thursday that half-point hikes were on the table for the next two meetings while leaving the door open for a crack to being more aggressive if needed.
Asked if he was taking a larger 75 basis-point increase off the table, he restated his comment from a May 4 press conference that the Fed wasn't actively considering such a move, according to a transcript of the interview released by Marketplace.
During a question and answer session following her speech, Mester said that financial markets are handling the Fed's moves so far, but policy makers need to be aware of potential risks to financial stability.
As we reduce the balance sheet, we're going to want to know what effect financial-market functioning will have on financial-market functioning, and how much is contributing to tightening of financial conditions, Mester said. We need to calibrate our policies to what is actually happening. In her remarks, Mester said that the Fed should consider selling its mortgage-backed security assets when its balance sheet runoff scheme is well under way, so that it returns its portfolio to mainly holding Treasuries.
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