Cleveland Federal Reserve Chair Loretta Mester said Monday that inflation will need to show more signs of progress before she is ready to stop advocating interest rate hikes.
While acknowledging that recent data has been encouraging, the central bank official told CNBC that progress is just the beginning.
“We’re going to have more work to do, because we need to see inflation really on a sustainable downward path to 2%,” she said in a live “Closing Bell” interview with Sara Eisen. “We’ve had some good news on the inflation front, but we need to see more good news and sustained good news to make sure we get back to price stability as soon as possible.”
Markets widely expect the Fed to approve its seventh rate hike of the year in December, but this time slowing to a 0.5 percentage point increase after a run of four consecutive moves of 0.75 percentage point.
Mester said she was okay with the reduced pacing.
“We’re at a point where we’re going to take a restrictive policy stance. At this point, I think it makes sense that we can slow down the … pace of increases a bit,” she said. “We’re going to raise the funds rate again, but we’re now at a reasonable point where we can be very deliberate in setting monetary policy.”
Several other Fed officials in recent days have expressed similar sentiments, essentially that the pace may be slowed down a bit, but there is still a need to continue to tighten policy until inflation shows more signs. of slowing down.
Markets have rallied in recent days following data showing a slower-than-expected rate of price increases, although inflation remains at an annual rate of 7.7%, as measured by the price index at the consumption. The Fed is targeting 2% inflation.
In recent days, the Fed has faced criticism that its focus on inflation could cause unnecessary damage to the economy. Mester said the Fed was trying to bring inflation down “as easily as possible.”
“I don’t think we should underestimate the consequences of continued long-term inflation for the health of the economy,” she said.