Fed’s Mester: Rate Increases Depending On Economy

Federal Reserve Bank of Cleveland President Loretta Mester said in an interview with the WSJ that, depending on what happens with the economy, some of the rate increase further out may need to be moved forward.

Additional Remarks:
“There are many things pushing up inflation now, including supply chain issues and wages.”

“We’ve moved from pandemic driven inflation to something broader.”

“If we can get beyond the pandemic we’ll see inflation measures come back down.”

“That is incumbent on the Fed doing what it needs to do to move off extraordinary accommodation.”

“The case is very compelling that we remove accommodation.”

“The Fed will have to take policy actions to make sure inflation expectations remain consistent with its 2% goal.”

“The Fed had to put in a lot of accommodation early in the pandemic but now the economy is basically back to full employment and above its inflation target.”

“Effects of balance sheet reduction will depend on where the economy is in the moment.”

“The Fed is also considering what it can do to balance sheet to bring the level of assets down.”

“If things look like they do today in March, I would support lifting rates from zero at that point.”

“Because of demographics, labor force participation trend is downward and we are back to that trend.”

“The pace of interest rate increases will depend on how the economy plays out.”

“The Fed has to be cautious and humble about putting a number on the effects of balance sheet reductions.”

“The Fed has to set an appropriate path for the balance sheet and then see what the effects are.”

“Reducing the balance sheet and raising interest rates both remove accommodation but might not yet be tightening monetary policy.”

“The Fed can reduce the balance sheet faster because the economy is in a stronger place and balance sheet at a higher place.”

“The Fed should reduce balance sheet as fast as they can without being disruptive to financial markets.”

“One strategy the Fed could use is selling assets, doesn’t want to take anything off the table.”

“Even without active selling, there is going to be a reduction in the balance sheet because of the maturity of holdings.”

“She would like to look at larger caps on redemption as the balance sheet is reduced.”

“Studies suggest the Fed could move considerably faster in reducing the balance sheet without causing disruption, but the committee still has to decide on a plan.”

“The Fed still wants to be communicative and transparent but the pandemic is requiring officials to be more nimble.”

“There’s no sense that fed wants to surprise anyone with its policies.”