Fed’s Mester: March probably too early for rate cut

The rocky path of getting inflation back to the US Federal Reserve’s 2% target rate reflected in the latest Consumer Price Index (CPI) figures means that it would likely be too soon for the central bank to cut its policy rate in March, Cleveland Fed President Loretta Mester said on Thursday.

“I think March is probably too early in my estimation for a rate decline because I think we need to see some more evidence,” Mester said in an interview with Bloomberg TV. “I think the December CPI report just shows there is more work to do and that work is going to take restrictive monetary policy.”

The Fed in December forecast cuts to its benchmark overnight lending rate this year but the timing and pace of them remain in flux as officials parse economic data.

Mester cited the need for the goods, housing and shelter excluding housing categories in the inflation measurement to “see more progress” as well as for wage gains to slow.

Earlier on Thursday, the difficulty in bringing inflation back down was underscored by a stronger-than-expected reading on price pressures as Americans paid more for shelter and healthcare.

The Fed’s rate-setting committee next meets on Jan. 30-31, when the central bank is expected to keep its policy rate unchanged in the current 5.25%-5.50% range.

Investors are still maintaining bets though that the Fed will begin to cut its policy rate at the following meeting in March, according to an analysis of fed funds futures contracts by the CME Group.

Mester added that the latest inflation data did not suggest progress on reducing inflation was stalling and emphasized the need for the Fed to more carefully manage the risks to both sides of its inflation and employment mandate in the coming months.

“The risks have become more in balance…that’s the job this year. It’s to make sure we are calibrating policy to maintain healthy labour markets even as we continue the process to get inflation back to 2%.”

The inflation figures followed the closely watched monthly jobs report last Friday, which showed a still-resilient labor market, with employers adding 216,000 jobs in December and annual wage growth edging up.