Cleveland Fed President Loretta Mester said in a speech Monday night that she thinks another interest rate hike is on the table and warned that rates could be held higher for “some time.”
How long the central bank holds rates at heightened levels, she added, will hinge on the strength of the US economy.
“At this point, I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,” Mester said in a speech in Cleveland.
Fed officials see raising rates one more time this year to a range of 5.5%-5.75% before holding rates at that level for an extended period. Rates currently stand in the range of 5.25%-5.5%.
The Fed has raised rates 11 times since March 2022 in the most aggressive rate-hiking campaign since the 1980s. While inflation has dropped, it remains around 4%, around double the Fed’s target.
Mester said progress is being made on inflation, but the level of inflation remains too high. She says the focus for the Fed is shifting to how long the Fed will hold rates around current levels.
“We are likely near or possibly at the peak of the fed funds tightening cycle,” she said. “Now our task turns to ensuring that we keep monetary policy restrictive for long enough to be confident that inflation returns to our 2 percent goal in a timely way. We are not there yet.”
Mester says she sees demand moderating and that supply conditions are improving. While the job market remains strong, the imbalance between demand for workers and supply is narrowing and companies are finding it easier to find the workers they need, she said.
Fed officials have repeatedly said they need to see supply and demand come back into better balance for inflation to drop.
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