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Terminal Pricing Unswayed By Mester Saying May Need To Lift Rates A Bit Higher

FED
  • Cleveland Fed’s Mester (’24 voter) said in an interview with German newspaper Boersen-Zeitung published just now that the Fed might need to lift interest rates "a bit higher" on the back of stronger-than-expected economic data and upside inflation risks.
  • The remarks, landing alongside a small beat for US factory orders, saw a marginal lift in terminal pricing that has since been partly reversed. Earlier dovish comments from Waller have had the larger impact as things stand, although neither have materially altered the outlook from levels seen after Friday’s payrolls with an OIS-implied terminal at 5.43%.
  • Further comments: "The latest indicators suggest that demand is somewhat stronger than expected, that the momentum in the economy is greater than thought," she said. "I can well imagine, from what I see so far, that we might have to go a bit higher, that we might have to raise the policy rate a bit more."
  • "We need to keep a sufficiently restrictive stance for quite some time to feel assured that inflation will come back down to 2%"
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