MNI BRIEF: Fed's Mester: 10-Year Yield Surge Affects Policy

A sustained surge in 10-year Treasury yields to 16-year highs tightens financial conditions and helps moderate demand and will feed into deliberations for whether the Federal Reserve needs to raise rates one last time and how long to leave them at that peak next year, Cleveland Fed President Loretta Mester said Tuesday.

"Those tighter higher rates will have an effect on the economy and we'll have to take that into account," she said in a call with reporters. "We're going to have to follow that and watch it, and that will influence not only our policy decisions, but how the economy evolves over the next year."

She reiterated that a last quarter-point rate increase by December is likely needed and rates will stay restrictive "for some time" to get inflation back to goal by the end of 2025.

"If the economy looks the way it did in the next meeting similar to the way it looked at our recent meeting, I would do the further rate increase," she said. "We really need to get inflation back to 2% if the economy can support that, and I think there is underlying momentum in the economy."

"Once we're convinced that inflation is really on that timely and sustainable path to 2%, that's when we can entertain perhapsbringingthefundsratedown butIdon't foreseethathappeninganytimesoon," she added.