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Free AccessMNI: Fed’s Mester - Rising Inflation Risks To Delay Cut Timing
Rising risks to the inflation outlook mean it will take longer for Federal Reserve officials to gain the confidence they need to begin reducing interest rates, Cleveland Fed President Loretta Mester said Thursday.
April inflation figures broke a streak of hotter-than-expected numbers and were greeted with relief in financial markets, though Mester did not appear so comforted.
“I now believe that it will take longer to reach our 2% goal than I previously thought. Recent inflation readings suggest that risks to the inflation part of our mandate have risen,” Mester said in prepared remarks.
“The lack of progress on inflation so far this year has been disappointing. Recent readings have not inspired greater confidence in me, and we will need to accumulate further data over the coming months to have a clearer picture of the inflation outlook.” (See MNI INTERVIEW: Fed Will Cut Rates More Sparingly in 2024-Weber)
WAGES AND HOUSING
Mester said she and her staff are still counting on the delayed effects of slower wage growth and a weaker housing market to filter through into lower price pressures.
“Analysis at the Cleveland Fed indicates that the past slowdown in wage growth will pass through to lower price inflation in core services and that the declines that have occurred in rents in new leases will pass through to slower inflation in housing services. Both of these effects will be needed in order to get back to 2% inflation, but they will take some time,” she said.
Policymakers should be prepared to raise interest rates, Mester said, if the inflation outlook becomes materially worse, something she does not foresee. Mester is scheduled to retire on June 30 due to Fed rules that limit officials' service based on age and length of service.
“Should developments in inflation and inflation expectations warrant it, policymakers will need to be open to tightening policy further. On the other hand, if the labor market unexpectedly deteriorates, policy could ease sooner and by more than currently anticipated,” she said.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.