Inflation remains well above the Federal Reserve’s 2% target, said Cleveland Federal Reserve President Loretta Mester, on Friday.
“Although there has been some progress, inflation remains too high,” Mester said, at an ECB research conference.
Fed officials are trying to gauge whether the current level of the Fed’s fed funds benchmark rate “is sufficiently restrictive and how long policy will need to remain restrictive to keep inflation moving down,” Mester said.
Future policy decisions will be about managing the risks of over-tightening versus under-tightening monetary policy, she said.
In July, the Fed raised its benchmark rate by 25 basis points to a range of 5.25%-5.5%.
Officials penciled in one more interest rate hike for this year.
Referring to the labor market, Mester said some progress is being made in bringing demand and supply into better balance, but the job market is still strong. Job growth has slowed and job openings are down, but the unemployment rate is low, at 3.8 percent, and the vacancy-to-unemployment ratio is still above its level during the strong labor market conditions in 2019, she noted.
See: U.S. creates mild 187,000 jobs in August. Hiring is slowing and could keep on Fed on hold
Traders in derivatives markets think the Fed will hold rates steady at their next meeting in September. Some economists think the Fed is done raising rates.
Mester told reporters on the sidelines of the Fed’s Jackson Hole conference last week that bringing inflation down will most likely require another rate hike.
In an interview with Reuters, Mester said the rate hike didn’t have to be in September, but sometime this year.
The Cleveland Fed president also said that rates would likely stay on hold for most of 2024. Mester will be a voting member of the Fed’s interest-rate committee next year.
The 10-year Treasury yield BX:TMUBMUSD10Y has fallen roughly 15 basis points this week on softer economic data.
