Federal Reserve Bank of Cleveland President Loretta Mester said on Tuesday that the U.S. central bank likely has more interest rate rises ahead amid signs the recent banking sector troubles have been contained.
To keep inflation on a sustained downward path to 2% and keep inflation expectations anchored, Mester said she sees monetary policy moving “somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time.”
“Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on how much inflation and inflation expectations are moving down, and that will depend on how much demand is slowing, supply challenges are being resolved, and price pressures are easing,” Mester said in a speech before a group of economists in New York.
The Fed in late March raised rates by a quarter percentage point, to between 4.75% and 5%. The decision was haunted by banking sector troubles that led policymakers to say that a tightening in financial conditions would likely weigh on economic activity.
“I was very comfortable with moving ahead” with the rate rise, given that authorities had taken steps to manage risks coming from banking sector troubles, Mester said in remarks following her speech.
At the policy meeting, officials also penciled in a single additional rate rise for this year, as the Fed continues to boost the cost of short-term borrowing in a bid to lower inflation.
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