MNI: Mester Urges Fed 'Be Resolute' On Controlling Inflation

The FOMC will need to "be resolute" to raise interest rates at the speed needed to get inflation under control even if the labor market and growth experiences setbacks along the way, Federal Reserve Bank of Cleveland President Loretta Mester said Thursday.

She also reiterated her support for two more 50bp interest rate hikes at the upcoming meetings this month and next and said the funds rate will probably need to go above its longer-run neutral level to rein in inflation.

"The FOMC will need to be resolute and intentional in removing policy accommodation to tighten financial conditions at the pace needed to get inflation under control. This will take fortitude. There will be bumps along the road," she said in remarks prepared for a virtual meeting of the Philadelphia Council for Business Economics.

RISING RECESSION RISK

Financial markets could remain volatile and the risk of recession has risen, she warned.

"Growth could slow somewhat more than expected for a couple of quarters; and the unemployment rate could temporarily move above estimates of its longer-run level. This will be painful but so is high inflation," she said.

The FOMC should be cautious about declaring inflation has peaked unless there have been several months of sustained downward monthly readings, she said.

"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 could be necessary," she said.