Fed’s Mester wants “much more evidence” that inflation has been defeated

Loretta Mester, President of the Cleveland Fed: We're not just going to react to a single data point

Cleveland Federal Reserve President Loretta Mester said Thursday that this week’s news of lower inflation rates wasn’t enough to convince her that the central bank had won its battle against higher prices.

“We are making progress on inflation, noticeable progress. We need to see more of this,” Mester told CNBC’s Steve Liesman during an interview on “The Exchange.” “We need to see much more evidence that inflation is on track back to 2%. But we have really good evidence that it has made progress, and now it’s just a question: Is it progressing?”

In separate reports, the Labor Department said consumer prices were flat in October from the previous month, while wholesale prices actually fell 0.5%.

While the producer price index fell below the Fed’s 12-month inflation target of 2%, the consumer price index was still at 3.2% and even higher, excluding food and energy, at 4%.

According to the reports, market pricing in the futures market completely ruled out the possibility that the Fed would approve further rate hikes. In addition, the market is currently expecting interest rate cuts of the equivalent of four quarter percentage points next year, according to an estimate by the CME Group.

But Mester said she reserves the right to judge where policymakers go from here.

“I haven’t assessed that yet. I think we are fundamentally in a very good position for politics at the moment,” she said.

Mester compared the Fed’s position to steering a ship, saying: “We are in a crow’s nest. What does the crow’s nest allow you to do? continues to develop. And then we have to see: Is it moving as we predicted?”

The Federal Open Market Committee next meets on December 12th and 13th.

Mester, who gets one vote on the committee in 2024 but will retire in the middle of the year after completing the term set by the Fed, said she hasn’t yet decided where she thinks interest rates should go.

“My feeling is that it’s really not about lowering interest rates. “It’s more about how long we stay in a restrictive stance and perhaps have to raise interest rates even higher given the economic development,” she said.

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