Beating inflation will likely necessitate one more interest-rate hike in the United States before going on hold for a while, Federal Reserve Bank of Cleveland President Loretta Mester said.
While she does not want to tighten policy to the point where the economy collapses, she told Reuters on the sidelines of a Fed conference in Jackson Hole, Wyoming, that she wants inflation to reach the Fed’s 2% target by the end of 2025.
“We simply don’t want it to continue floating out. Fast-rising prices not only impose a hefty cost on Americans; allowing inflation to fester also makes the economy more vulnerable to future shocks,” Mester explained.
“The longer we allow inflation to continue at 2%, we are erecting a higher and higher price level, which harms the American people. I guess that’s why timing is important to me,” she explained.
Most Fed officials, including Mester, believed in June that they would be able to cease raising the policy rate once it reached a range of 5.5%–5.75%, a quarter-point higher than it is now.
Economic growth has been stronger than many predicted, and the job market remains tight, and Mester believes that the Fed’s rate rises thus far will slow both.
Fed estimates presented in June reveal a median expectation of 2.1% inflation by the end of 2025; Mester predicted 2% inflation. Forecasts will be presented in September and will reflect what they anticipate through 2026.
“The Fed’s next and likely final rate rise doesn’t necessarily have to be in September, but I believe this year,” she added.
