Central Banks

Cleveland Fed Pres. Loretta Mester is speaking and says:

  • need ongoing rate increases, including 50 basis point rate hikes at the next 2 Fed meetings
  • at that point Fed will be well-positioned to consider appropriate pace for further rate hikes and assess how high rates need to go
  • policy rate probably needs to go above 2.5%, but cannot make that call today, depends on how much demand moderates and what happens with supply.
  • If by September see compelling evidence that inflation is moving down, can slow rate hikes, if it has failed to moderate, faster rate pace could be needed.
  • Fed must be resolute, intentional in removing policy accommodation
  • Risk of recession has risen, but a good case can be made that a sharp slowdown can be avoided
  • Growth could slow, unemployment could temporarily rise; this will be painful, but so is high inflation.
  • Inflation is not yet peaked
  • Fed needs to see several months of sustained downward readings to conclude that inflation has peaked.
  • Economies key challenge is unacceptably high inflation.
  • Supply chain disruptions akin to whack a mole
  • Current pace of wage increases inconsistent with price stability.
  • Labor markets are very tight

Although Fed’s Bostic open the door for some potential stall in September last week, he also walked back that comment this week. Other Fed officials are much more resolute and insistent that rate rises will continue until for  inflation  is beat and that won’t be anytime soon.

The Fed is still lagging the market, but with QT starting yesterday (and increasing going forward), and 50 basis point x 2 hikes guaranteed with the potential for another one in September (the market is pricing in a 60%-70% chance, the big catch up in his underway.

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