President and CEO of the Federal Reserve Bank of Cleveland, Loretta Mester appears on “The Exchange” on March 7, 2024.
CNBC
Cleveland Fed President Loretta Mester said Tuesday she still expects rate cuts this year, but ruled out holding her next policy meeting in May.
Meister also noted that the long-term trajectory is higher than policymakers previously thought.
The central bank official noted progress on inflation while the economy continued to grow. If this continues, interest rates are likely to be cut, although she did not provide any guidance on timing or extent.
“I still think the most likely scenario is that inflation will continue on its downward trajectory to 2% over time,” Meester said in prepared remarks for a speech in Cleveland. “But I need to see more data to raise my confidence.”
She added that additional inflation readings will provide clues as to whether some higher-than-expected data points this year are either just temporary blips or a sign that progress in inflation is “stalling off.”
“I don't expect to have enough information by the next FOMC meeting to make that decision,” Meester said.
The comments come about two weeks after the Federal Open Market Committee, which sets interest rates, voted again to keep the key overnight borrowing rate in a range of 5.25%-5.5%, which it has been since July 2023. The post-meeting statement reiterated Meister's statements. The committee needs to see more evidence that inflation is progressing toward the 2% target before it starts cutting interest rates.
Meester's comments appeared to rule out a cut at the April 30-May 1 FOMC meeting, a sentiment also reflected in market prices. Meester is a voting member of the FOMC but will leave in June after serving his 10-year term.
Futures traders expect the Fed to begin easing in June and cut rates by three-quarters of a percentage point by the end of the year.
While looking for rate cuts, Meester said she believes the long-term federal funds rate will be higher than the long-term forecast of 2.5%. Instead, you see what is called the neutral rate or “r*” at 3%. The rate is considered the level at which the policy is neither restrictive nor stimulative. After the March meeting, long-term interest rate expectations rose to 2.6%, indicating that there are other members leaning higher.
Mester noted that the rate was too low when the Covid pandemic hit and did not give the Fed much room to maneuver to boost the economy.
“At this stage, we seek to calibrate our policy well with economic developments so that we can avoid having to act in an aggressive manner,” she said.
