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Fed’s Mester says half-point rate hikes are needed to fight inflation

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Cleveland Federal Reserve President Loretta Mester said Friday that she doesn’t see ample evidence that inflation has peaked and thus is on board with supporting a series of aggressive rate of interest increases.

“I believe the Fed has shown that we’re within the means of recalibrating our policy to get inflation back right down to our 2% goal. That is the job before us,” Mester said in a live interview on CNBC’s “The Exchange.”

“I don’t need to declare victory on inflation before I see really compelling evidence that our actions are starting to do the work in bringing down demand in higher balance with aggregate supply,” she added.

Mester spoke the identical day the Bureau of Labor Statistics reported that nonfarm payrolls rose by 390,000 in May, and, importantly, that average hourly earnings had increased 0.3% from a month ago, a bit lower than the Dow Jones estimate.

While other recent data points have shown that at the least the speed of inflation increases has diminished, the policymaker said she’s going to must see multiple months of that trend before she’ll feel comfortable.

“It’s too soon to say that that is going to vary our outlook or my outlook on policy,” Mester said. “The No. 1 problem within the economy stays very, very high inflation, well above acceptable levels, and that is got to be our focus going forward.”

Recent statements from the rate-setting Federal Open Market Committee indicate that fifty basis point — or half-point — rate increases are likely on the June and July meetings. Officials are then more likely to evaluate the progress that the policy tightening and other aspects have had on the inflation picture. A basis point equals 0.01%.

But Mester said any sort of pause in rate hikes is unlikely, though the magnitude of the increases could possibly be reduced.

“I’m going to come back into the September meeting, if I do not see compelling evidence [that inflation is cooling], I could easily be at 50 basis points in that meeting as well,” she said. “There isn’t any reason we have now to make the choice today. But my start line shall be do we’d like to do one other 50 or not, have I seen compelling evidence that inflation is on the downward trajectory. Then perhaps we will go 25. I’m not in that camp that we predict we stop in September.”

Mester’s comments were just like statements Thursday from Fed Vice Chair Lael Brainard, who told CNBC that “it’s extremely hard to see the case” for pausing rate hikes in September. She also stressed that quashing inflation, which is running near 40-year highs, is the Fed’s top priority.

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