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Fed Mester: Still leaning towards three rate cuts this year, no need to rush to cut rates

2024-02-07

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Financial Associated Press, February 7 (Editor Niu Zhanlin) On Tuesday, local time, Cleveland Federal Reserve Chairman Mester said that there is no rush to start cutting interest rates. If the economy develops as expected, policymakers may get it "later this year." Confidence in interest rate cuts, but still leaning toward three rate cuts in 2024.

On the same day, Mester claimed at a financial conference in Ohio that Fed officials want to see more evidence that inflation is moving toward the 2% target and cautioned against reducing borrowing costs prematurely.

Mester has been a staunch "big hawk" at the Fed over the past two years. She has a vote on interest rate decisions this year, but is expected to step down in June when Mester's term as president of the Cleveland Fed ends.

She pointed out that without sufficient evidence that inflation is slowing sustainably, it would be a mistake to lower interest rates too early or too quickly. "If the economy develops as expected, I think we'll gain that confidence later this year and then we can start lowering interest rates."

Mester said last month that it was too early for the Fed to cut interest rates at its March meeting, and the new inflation data showed that Fed policymakers still have more work to do. Several Fed officials, including Chairman Jerome Powell, have made similar comments in recent weeks.

In an interview after the meeting, Mester noted that she still expects three interest rate cuts this year, which is consistent with the forecast she submitted before the Fed's December policy meeting. She also said a rate cut does not necessarily need to occur at the quarterly meeting when the Fed releases its Summary of Economic Projections (SEP).

She added that a resilient labor market and strong economic growth give the Fed time to evaluate incoming data while keeping interest rates at current levels to ensure that inflation continues to fall as it has in the past.

In addition, she pointed to several risks to the economic outlook, including heightened geopolitical risks, pressure on the banking sector from commercial real estate lending and an unexpected deterioration in the labor market. So far, however, the Red Sea issue has not affected supply chains.

After Fed officials raised interest rates to a 22-year high of 5.25%-5.5% in July last year, as inflation continued to cool, the Fed has since kept policy unchanged and signaled that the next step may be to cut interest rates.

Markets had expected the Fed to make the decision at its March meeting, but after comments from Fed officials and a strong January jobs report, markets shifted those bets to a policy meeting in May or June.

"The Fed's job now is to ensure that the economy gets to a better place by adjusting monetary policy to achieve our dual mission goals of price stability and maximum employment," Mester said.

She noted that rising productivity and a strong job market may mean that neutral rates - policies that are neither stimulating nor restrictive - have risen in the post-pandemic economy. She said that may mean that policies need to remain restrictive for longer to fully restore price stability and maximum employment.

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Fed Mester: Still leaning towards three rate cuts this year, no need to rush to cut rates

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