Fed’s Mester: FOMC On Track For Aggressive Rate Hikes

Loretta Mester is a voting member of the Federal Open Market Committee this year. Mester said, on Friday, that the Fed needs to practice pressure ahead with aggressive rate hikes, and that by early fall, this year, the US central bank perhaps could be able to eventually decide whether its current policy can tame hot inflation or will need to speed up the process of removing support from the economy.

“Given economic conditions, ongoing increases in the fed-funds rate are called for, and unless there are some big surprises, I expect it to be appropriate to raise the policy rate another 50 basis points at each of our next two meetings,” Mester said in a speech before the International Research Forum on Monetary Policy sponsored by the Euro Area Business Cycle Network, the European Central Bank, and the Fed.

“The Federal Open Market Committee (FOMC) met last week; so, in my brief prepared remarks, I will review the FOMC’s recent decisions and put them into context”.

Mester reiterated that the views she presents today will be her own and not necessarily those of the Fed System or of her colleagues on the Federal Open Market Committee.

“In making its monetary policy decisions, the FOMC is always guided by its strong commitment to achieving its goals of price stability and maximum employment. At the start of the pandemic in March 2020, the FOMC reduced the target range of its policy rate, the federal funds rate, to 0 to 1/4 percent, to support the economy in the wake of the unprecedented COVID shock”, Mester added.

She also pointed out that the FOMC also used its balance sheet as a policy tool, buying large quantities of Treasury securities and agency mortgage-backed securities, to reduce the severe strains in financial markets seen early in the pandemic and to support the economy, adding that in March 2022, the FOMC raised its policy rate by 25 basis points.

“Last week, it raised the fed funds rate by another 50 basis points and indicated that it believes ongoing rate increases will be appropriate. The FOMC also announced that it will begin reducing its balance-sheet assets starting in June”, she said.