MNI: Fed Mester: Faster Hikes If Inflation Not Slowing By Sept

Federal Reserve Bank of Cleveland President Loretta Mester signaled 50bp interest rate increases may be appropriate at least until September unless inflation shows clear signs of slowing, with even larger hikes possible if it doesn't.

"If by the September FOMC meeting, the monthly readings on inflation provide compelling evidence that inflation is moving down, then the pace of rate increases could slow, but if inflation has failed to moderate, then a faster pace of rate increases may be necessary," she told an European Central Bank virtual forum.

"Given economic conditions, ongoing increases in the fed funds rate are called for, and unless there are some big surprises, I expect it to be appropriate to raise the policy rate another 50 basis points at each of our next two meetings," she said.

Mester, along with Richmond Fed President Tom Barkin, have indicated that a 75 bp increase is not off the table entirely if inflation doesn't lose momentum.

The Fed is determined to bring inflation under control even at the cost of hurting growth and employment temporarily, she said. MNI reported Friday the Fed has started to acknowledge that an economic soft landing may be hard to pull off. (See: MNI: Fed Sees 'Growth Recession' As Base Case--Ex-Officials)

"It will be challenging to remove accommodation at the pace needed to get inflation under control while sustaining healthy labor market conditions. There are likely to be some bumps along the road; growth could slow a bit more than expected for a couple of quarters and the unemployment rate could move up temporarily. Nonetheless, the FOMC will be aiming to calibrate our policy to bring demand better in line with supply, thereby putting inflation on a downward trajectory toward our 2 percent goal."