The Federal Reserve isn’t ruling out a three quarters of a percentage point hike forever but the current pace of smaller, half-a-point moves “seems about right to me,” Cleveland Fed president Loretta Mester said Tuesday.
“We don’t rule out 75 forever,” Mester said in an interview on Bloomberg Television. “I think the pace we’re going right now seems about right to me. We’ll going to have to assess whether inflation is actually moving down. And then we’ll be able to get information about we do a couple of those.”
The Fed hiked its interest rate target by a quarter of a point in March and half a point at its meeting last week. Fed Chairman Jerome Powell indicated that the central bank would hike rates by a half-percentage-point, or 50 basis points, at the next two meetings in June and July. He said Fed officials were not considering a larger hike at this time.
Mester said she expected the Fed would have to raise interest rates high enough that they weigh on the economy, going beyond what Fed officials describe as a “neutral” monetary policy that neither inhibits or encourages additional growth.
“Given where inflation is now, I suspect we’re going to have to move above neutral, but I can’t tell you exactly how far above neutral,” she said.
“Both supply and demand will be moving over time,” Mester said. “We need to use our tools to get demand more aligned with constrained supply. So I don’t want to rule anything out. If we get to that point in the second half of the year and we don’t have inflation moving down, we may have to speed up. ”
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