Connect with us

Hi, what are you looking for?

Right Decision NowRight Decision Now

World News

Fed’s Mester says rate target will need to go over 5%

Federal Reserve Bank of Cleveland President Loretta Mester said on Tuesday that the US central bank likely has more interest rate rises ahead amid signs the recent banking sector troubles have been contained.

To keep inflation on a sustained downward path to 2% and keep inflation expectations anchored, Mester said she sees monetary policy moving “somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time.”

“Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on how much inflation and inflation expectations are moving down, and that will depend on how much demand is slowing, supply challenges are being resolved, and price pressures are easing,” Mester said in a speech before a group of economists in New York.

The Fed in late March raised rates by a quarter percentage point, to between 4.75% and 5%. The decision was haunted by banking sector troubles that led policymakers to say that a tightening in financial conditions would likely weigh on economic activity.

“I was very comfortable with moving ahead” with the rate rise, given that authorities had taken steps to manage risks coming from banking sector troubles, Mester said in remarks following her speech.

At the policy meeting, officials also penciled in a single additional rate rise for this year, as the Fed continues to boost the cost of short-term borrowing in a bid to lower inflation.

In her remarks, Mester, who does not have a vote on the policy-setting Federal Open Market Committee this year, said, “My forecast is similar to the modal forecasts of FOMC participants released two weeks ago, although I see somewhat more persistent inflation pressures than the median forecast among participants.”

She also pushed back on market views that the Fed will need to cut rates much sooner than central bankers currently expect. “Can I come up with scenarios that would have the Fed cutting rates? Yes. Is it my modal forecast? No.”

Mester expressed confidence that banking sector woes should ultimately prove contained.

“The US banking system is sound and resilient,” she said. “The stresses experienced in the banking system in March have eased, but the Fed continues to carefully monitor conditions and is prepared to take further steps as necessary to ensure financial stability.”

In her remarks, Mester said she expects growth and hiring to slow and inflation pressures to ease.

There should be a “meaningful improvement” in inflation with price pressures easing from their current 5% year-over-year increase to 3.75% this year and 2% by 2025, Mester said.

She said growth should slow to below-trend levels this year before ticking up next year. Unemployment, now at 3.6%, should rise to between 4.5% and 4.75% by the close of 2023, she said. — Reuters

    You May Also Like

    Business

    The head of the International Monetary Fund has warned of increased risks to the stability of the financial system after weeks of banking sector...

    Business

    The Home Office has made next to no progress in tackling criminal fraud during the past five years, despite it having become Britain’s most...

    Business

    Mark Zuckerberg has laid off more than 11,000 Meta’s employees, about 13 per cent of its global workforce, in what he described as “some...

    Business

    1.22 billion people use Instagram every month. That’s a huge number of Instagrammers trying to hit it big on the platform all at the...

    Disclaimer: rightdecisionnow.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 rightdecisionnow.com | All Rights Reserved