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The Fed: Fed’s Mester says there’s been no progress on inflation, so interest rates need to move higher

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With little or no progress made on bringing inflation down, the Federal Reserve needs to continue raising interest rates, Cleveland Fed President Loretta Mester said Tuesday.

“At some point, you know, as inflation comes down, them my risk calculation will shift as well and we will want to either slow the rate increases, hold for some time and assess the cumulative impact on what we’ve done,” Mester told reporters after a speech to the Economic Club of New York.

“But at this point, my concerns lie more on – we haven’t seen progress on inflation , we have seen some moderation- but to my mind it means we still have to go a little bit further,” Mester said.

In her speech, the Cleveland Fed president said the central bank needed to be wary of wishful thinking about inflation that would lead the central bank to pause or reverse course prematurely.

“Given current economic conditions and the outlook, in my view, at the point the larger risks come from tightening too little and allowing very high inflation to persist and become embedded in the economy,” Mester said.

She said she thinks inflation will be more persistent than some of her colleagues.

As a result, her preferred path for the Fed’s benchmark rate is slightly higher than the median forecast of the Fed’s “dot-plot,” which points to rates getting to a range of 4.5%-4.75% by next year.

Mester, who is a voting member of the Fed’s interest-rate committee this year, repeated she doesn’t expect any cuts in the Fed’s benchmark rate next year. She stressed that this forecast is based  on her current reading of the economy and she will adjust her views based on the economic and financial information for the outlook and the risks around the outlook.

Opinion: Fed is missing signals from leading inflation indicators

Mester said she doesn’t rely solely on government data on inflation because some of it was backward looking. She said supplements her research with talks with business contacts about their price-setting plans and uses some economic models.

The Fed is also helped by some real-time data, she added.

“I don’t see the signs I’d like to see on the inflation,” she added,

Mester said she didn’t see any “big, pending risks” in terms of financial stability concerns.

“There is no evidence that there is disorderly market functioning going on at present,” she said.

U.S. stocks were mixed on Tuesday afternoon with the Dow Jones Industrial Average
DJIA,
-0.11%

up a bit but the S&P 500 in negative territory. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.924%

inched up to 3.9%

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