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Cleveland Federal Reserve President Loretta Mester said Friday that the central bank will have to find a way next year to get away from the constant questions over what the central bank will do at every meeting.
Fed officials, including Mester, think that it will be important to hold interest rates at their peak level “for some time” to continue to put downward pressure on inflation.
It will be useful if unending questions about the length of that period could be laid to rest, she said.
“Getting away from the meeting-to-meeting guessing game of will they or won’t they increase the funds rate would seem to add some beneficial stability allowing firms and financial markets to absorb the increases in the pipeline,” Mester said, in a speech to the Shadow Open Market Committee, a group of monetarist economists, in New York.
Is the Fed’s benchmark rate at its peak rate?
Mester didn’t say how the Fed might short-circuit questions. In late 2012, the Fed set out specific benchmarks that needed to be met before it raised interest rates. These benchmarks were developed by the former president of the Chicago Fed, Charles Evans.
Mester said she is in the camp of one more rate hike this year. That would bring the federal funds rate to a range of 5.5%-5.75%.
Mester said regardless of whether the Fed hikes again, the central bank is “nearing the end of its phase” of hiking rates.
The Cleveland Fed president will be a voting member of the Fed’s interest-rate committee in 2024.
Mester said the Fed has made “discernible progress” on bringing inflation down. She said she expects economic growth to moderate and the labor market to cool.
Bankers in her district report that consumers are relying more on home equity lines of credit and credit cards to fuel spending.
“As savings balances normalize and credit conditions remain restrictive, consumer spending is expected to moderate,” she said.
Stocks
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were lower in early afternoon trading while the yield on the 10-year Treasury note
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slipped to just below 5%.
