Fed wants to see tighter financial conditions, though not all at once

Cleveland Fed President and FOMC member Lorreta Mester, speaking in an interview on CNBC, said on Friday that the Fed wants to see tighter financial conditions, though not all at once. “We are in a recalibration phase for monetary policy,” she said, adding that the Fed’s goal is to bring inflation under control, but also to sustain the expansion and maintain healthy labour markets. 

Additional Remarks:

“Markets are reading the same data we are.”

“We need to be resolute on bringing rates up to neutral.”

“I’d like to get to the neutral rate of 2.5% by the end of the year.”

“Once at the neutral rate, the Fed will be in ‘good position’ to evaluate the economy.”

“Things other than monetary policy are affecting inflation.”

Asked about 75 bps point hike, Mester said “we don’t need to go there”.

“I’d rather be more deliberative and intentional.”

“I would support a 50 bps rise in May and at a few more meetings after that.”

An outsized move to the federal funds rate is “not the right way to go”. 

“I’d rather be more consistent.”

“Once we get to neutral, where rates go will depend on how the economy behaves.”

“Let’s be on a methodical, not overly aggressive, path.”

“The shock of a 75 bps rate hike is not needed.”

“I’d favor doing 50 bps hikes earlier on in rate hike path.”

“My forecast is for economic growth to slow to above 2% this year.”

“I am confident we can put inflation on a downward trajectory and keep the expansion going.”

“The risk of running inflation this high, this long is the risk to inflation expectations.”

“It’s important for the Fed to follow through with rate hikes.”

“I want to be very deliberate and intentional, and to get to neutral expeditiously by the end of the year.”

“I think it will take a few years to get inflation back to 2.0%, and balance sheet reductions will also reduce accommodation.”