The Fed official sees no “compelling” reason to wait for another rate hike

A senior Federal Reserve official said there is no “compelling” reason to wait before implementing another rate hike if economic data confirms more needs to be done to control inflation in the United States.

In an interview with the Financial Times, Cleveland Fed President Loretta Mester dismissed recent suggestions from some policymakers who have argued that the US central bank should forgo a rate hike at its next meeting in June.

“I really don’t see a compelling reason to hold off — in the sense of waiting until you have more evidence to decide what to do,” she said. “I used to see more than one compelling case to bring [rates] higher . . . Then keep some time until you feel less uncertain about the direction the economy is going.”

The agreement reached this weekend between the White House and Republican congressional leaders on the US borrowing limit “mitigates[s] Much of the uncertainty is about the economy. The deal must still be approved by both houses of Congress, with the first vote expected Wednesday in the House of Representatives.

Meester’s comments come amid divisions among US policymakers over new rate hikes, with some officials hinting at a pause in June before restarting later when the economic picture becomes clearer. Meanwhile, others point out that the Fed may not need to tighten further.

However, Mester argued that the bank should always operate with some uncertainty about the economy’s path, and said she believes the Fed should pause only when the risks of doing too little are equally balanced by doing too much.

Meester said the only reason to skip a rate hike when it’s clear more tightening is necessary is because of extreme market volatility or some other shock, such as the possibility of a US debt default.

Meester said she could still be affected by Friday’s employment data as well as the upcoming inflation report, which will be released as US central bank governors gather for their two-day meeting starting on June 13.

However, Meester, one of the more hawkish regional heads, indicated that she was disappointed with the progress in containing price pressures so far.

“I think we may have to go further,” she said. “At this point, I don’t necessarily see a compelling reason why we wouldn’t want to take another small step to counter some of the really ingrained stubborn inflationary pressure.”

Her comments mark the latest intervention in the tense debate among officials over whether the Fed has squeezed the economy enough to bring down inflation. It has raised its record price by more than 5 percentage points in a period of just over a year.

After a series of jumbo hikes in interest rates, the federal funds rate is now between 5 percent and 5.25 percent. In March, most officials expected that level to mark the climax of the tightening campaign.

Mester, who won’t become a voting member of the Federal Open Market Committee’s policymaking committee until next year, said rate-setting decisions will become more difficult in the future.

Several voting members of the FOMC recently expressed skepticism about the need for an imminent pause.

However, Chairman Jay Powell recently hinted that he supports a pause, citing the number of interest rate increases the Fed has implemented. He has also argued that the recent banking turmoil will lead to a tightening of financial conditions and will in fact do some of the central bank’s work in their favour.

“We’re getting to the real hard part here in how we evaluate the trade-offs,” Meester said. “Different policy makers will have different perspectives on how they assess things.”

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