MNI POLICY: Fed's Mester Sees Unemployment at 4.5% By Year End

Cleveland Fed President Loretta Mester said Thursday she expects the unemployment rate to fall to 4.5% or lower by December but warned it will take time to achieve a "sustainable, broad-based recovery."

"I anticipate we're going to see labor market conditions improve a lot by the end of the year" barring a surge in variants that are impervious to Covid vaccines, she told reporters on a call. But "what I'm looking for is a move to something that's a sustainable, broad-based recovery. Right now I still say we have an uneven recovery at the individual level," with higher income jobs basically back to pre-pandemic levels but lower income jobs far behind, she said.

MNI has reported Fed leaders are meeting with community leaders more often as they seek to determine progress towards redefined employment goals.

Meanwhile, factors that have held down inflation in recent years are "still in place today," including globalization, technological change, and the relative bargaining power of firms versus workers, Mester said, adding she's not worried that the Fed will be behind the curve when it starts raising rates.

"What we're looking for is sustained inflation and I don't see that that's going to pick up quickly," she said. "We do have the tools to address a situation like that."

Mester votes on monetary policy decisions in 2022.