Cleveland Federal Reserve President, Loretta Mester, expressed her skepticism regarding the recent news of lower levels of inflation. Despite the progress made, Mester believes that more evidence is required to confirm that the central bank has successfully addressed the issue of rising prices. In an interview on “The Exchange” with CNBC’s Steve Liesman, Mester stated, “We’re making progress on inflation, discernible progress. We need to see more of that.” She emphasized the importance of observing a consistent trend towards the Federal Reserve’s target inflation rate of 2%.
Recent reports from the Labor Department revealed that consumer prices remained unchanged in October, while wholesale prices experienced a 0.5% decrease. Although the producer price index fell below the desired 2% inflation benchmark, the consumer price index stood at a concerning 3.2%. Even more alarming was the inflation rate, excluding food and energy, at 4%. These figures have led market pricing in the futures market to eliminate any possibility of the Fed approving additional interest rate hikes. Additionally, market indicators are now projecting the likelihood of four quarter percentage point rate cuts in the upcoming year.
Despite market reactions, Mester remains cautious in her assessment of future monetary policy decisions. She stated, “I haven’t assessed that yet. Where I think we are right now is we’re basically in a very good spot for policy.” Using a ship analogy, Mester likened the Fed’s position to that of the crow’s nest on a ship. Just as the crow’s nest provides a vantage point to observe the horizon and analyze incoming data, the Federal Reserve must evaluate whether the economy is evolving as predicted.
The Federal Open Market Committee (FOMC) is scheduled to convene on December 12-13. Mester, who currently does not hold a voting position on the committee but will have one in 2024, expressed her uncertainty regarding the direction of interest rates. However, she emphasized that her concern lies more in how long the restrictive stance on rates should be maintained, given the state of the economy. Mester’s comments highlight the importance of prudently managing monetary policy in response to economic developments.
While recent reports have shown a slight decline in inflation, Mester remains cautious and calls for more evidence of sustained progress towards the Federal Reserve’s 2% inflation target. The market has already adjusted its expectations, anticipating future rate cuts instead of hikes. The upcoming FOMC meeting will shed more light on the central bank’s decision-making process. Mester’s reserved judgment and careful assessment highlight the challenges faced in steering the economy towards stable and consistent inflation rates.