By Michael S. Derby
NEW YORK (Reuters) – Cleveland Federal Reserve Chair Loretta Mester said on Tuesday that even with a slew of rate hikes this year, the U.S. central bank still has not been able to control inflation and will need to move forward with tightening monetary policy.
“Unacceptably high and persistent inflation remains the main challenge facing the US economy,” Mester said in a speech prepared for an event in New York. “Despite some moderation on the demand side of the economy and initial signs of improvement in supply-side conditions, there has been no progress on inflation,” Mester said.
Mester said in his comments that he expects to see more rate hikes than the authorities’ collective vision.
“Monetary policy is moving into tighter territory and will need to be there for some time to put inflation on a sustained downward trajectory towards our 2% target,” he said. “I do not foresee any cuts in the target rate range next year.”
Mester declined to comment on the magnitude of interest rate hikes he would like to see at the next Federal Open Market Committee (FOMC) meeting and explained that “the size of interest rate hikes at any particular FOMC meeting and the peak of the base rate will depend on the inflation outlook, which depends on an assessment of how quickly aggregate demand and supply are returning to a better balance and price pressures are being reduced.”
Mester said inflation is expected to drop to 3.5% next year and return to the Fed’s 2% target in 2025. The central bank’s preferred gauge of price pressure, the personal consumption spending (PCE) price index , in the acronym in English), rose 6.2% in August over a year earlier.
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