Last week, the Federal Reserve increased base interest rate 75 points, 25 bps more than officials had signaled for weeks, as the consumer price index (“CPI”) in May was worse than expected. Bigger than signal Loretta Mester, president of the Federal Reserve Bank of Cleveland, told CBS News ‘Margaret Brennan, told CBS News’ Margaret Brennan on “Face the Nation”
“To be honest, CPI report in May ester says it’s fundamentally not good in terms of inflation.
“We have also said that we need to be agile during this period of uncertainty. And when we see data moving in the wrong direction or continuing to move in the wrong direction, and information that inflation expects – not just in the short term but even in the long term it’s increasing, which convinces me that moving at a clip larger than what we signaled early on is appropriate,” she explained.
Mester concedes that the Fed can only influence the demand side of the supply-demand equation. And that means it will take several years for inflation to fall back to the Fed’s 2% target as supply forces also need to adjust.
She explains the Fed’s strategy. “We have to have monetary policy in a good place to counter that excess demand, and the excess demand is really pressuring prices. That’s what we can do with our tools. and we’re committed to doing that.”
Some have argued that a sharp rate hike could also slow the economy down too much, increasing the risk of a recession.
“Recession risks are growing, in part because monetary policy could pivot a little earlier than it has in the past,” Mester said. “We’re doing it right now by raising interest rates, but there’s a lot of other things going on. The Ukraine situation, a tragedy, has really led to high oil prices that everyone feels the burden of. bear.”
However, she does not predict a recession. Look at the Federal Reserve summary of economic forecasts: “We actually have growth slowing down to a bit below-trend growth, and we have a slightly higher unemployment rate, and that’s okay. We’d like to see a demand slows down to make it match supply.”
The implementation will require a deft touch. “What we’re going to do is set our policy – our interest rates – so that we can maintain a healthy economy and a healthy labor market as we go through this,” Mester said. through this stage.
“What we’re looking at is raising interest rates to a more normal level so we can stop some of the excess demand dynamics in the economy and bring it down so we can release some of the pressure.” that inflation,” she said.
Previously, Janet Yellen said that inflation was too high, The gas tax holiday is worth considering.
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