Fed's Mester Suggests Higher Interest Rates Ahead

The Federal Reserve building in Washington, D.C.
Chip Somodevilla / Getty Images

Key Takeaways

  • Loretta Mester, president of the Cleveland Federal Reserve, expressed support of additional rate hikes to slow inflation.
  • Despite signaling that rates will need to increase, Mester said that the U.S. economy could experience a soft landing.
  • Other Fed officials have recently voiced similar opinions about the need for further hikes.

Cleveland Federal Reserve President Loretta Mester joined other Fed presidents in signaling support for more rate hikes to curb inflation.

Mester said that she believed the Federal Reserve will need to raise interest rates further to slow inflation but suggested that a soft landing was in store for the economy.

"I anticipate that monetary policy will need to move somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time," Mester said in a speech in Akron, Ohio.

The Fed raised the federal funds rate to a range of 4.75% to 5% in March, part of a year-long cycle of hiking rates up from near zero to bring inflation down. Markets are currently pricing in an over 80% chance of Fed officials raising rates by another 25 basis points at the Fed's next policy meeting in May, according to federal funds futures data collected by CME Group.

Earlier in the week, St. Louis Federal Reserve President James Bullard also said that recent data showed that inflation remained enough of a threat to warrant more rate hikes. Atlanta Federal Reserve President Raphael Bostic told CNBC that he saw the Fed moving rates one more time and holding them above 5% for some time.

Chart showing target rate probabilities for the Fed meeting on May 3, 2023

CME Group

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