Fed Mester Nearing Retirement Also Says "No Need for Interest Rate Hikes"

Loretta Mester, President of the Cleveland Federal Reserve Bank (Fed), who is scheduled to retire after the June meeting of the U.S. Federal Open Market Committee (FOMC), stated that there is no need to raise the benchmark interest rate. Shortly after, the U.S. core Consumer Price Index (CPI) for April was released, recording the lowest rate of increase in three years, further strengthening bets on interest rate cuts.

[Image source=Reuters Yonhap News]

In an interview with the Wall Street Journal (WSJ) published on the 14th (local time), Mester said, "It is too early to conclude that we are stuck or that inflation will rebound." She holds voting rights at this year’s FOMC and is scheduled to retire at the end of June. The meeting on July 11-12 will be her last FOMC.

Mester, who has voiced hawkish views within the Federal Reserve, evaluated the current monetary policy as being in a "good position" to respond to various risks. She explained, "Honestly, there is no need to raise rates at the current level," adding, "We have seen some of the effects equivalent to aggressive rate hikes when three mid-sized banks failed last year."

This aligns with Federal Reserve Chair Jerome Powell’s recent remarks dismissing the possibility of rate hikes within the year. Mester argued that additional rate hikes could trigger financial system instability issues.

Regarding the so-called last mile concerns, Mester mentioned, "I have always had doubts that there would not be rapid (disinflation) progress like in the second half of last year." While she said that if inflation does not ease further, the Fed might signal possible rate hikes, she emphasized, "We have not reached that situation yet."

Ultimately, Mester pointed out that the key will be inflation expectations. She said that stable medium- to long-term inflation expectations have helped the Fed reduce inflation so far. She also evaluated that long-term inflation expectations are well anchored to the 2% price stability target.

Additionally, Mester expressed optimism that the Fed can lower inflation without an increase in unemployment. She said, "There are clear signs of easing in the real economy, which helps restore economic balance," adding, "There is no need to undermine the real economy to reduce inflation."

The U.S. core CPI for April, released on the 15th, rose by 3.6%, marking the lowest level in three years. Austan Goolsbee, President of the Chicago Fed, appeared on Marketplace Radio that day and welcomed the CPI slowdown, saying, "It is similar to what was expected." Although he does not have voting rights at this year’s FOMC, he pointed out the need to watch housing inflation. On the same day, U.S. retail sales for April also fell short of expectations, bolstering hopes for rate cuts.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected nearly a 72% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC, up from about 65% the previous day.

This content was produced with the assistance of AI translation services.