Fed’s Mester Sees A Benchmark Rate Above 4% And No Cuts At Least Through 2023

• Cleveland Federal Reserve President Loretta Mester said Wednesday, August 31, 2022, that she sees interest rates rising considerably higher before the central bank can ease off in its fight against inflation.
• Mester, a voting member this year of the rate-setting Federal Open Market Committee, said she sees benchmark rates rising above 4% in the coming months. That’s well above the current target range of 2.25%-2.5% for the federal funds rate, which sets what banks charge each other for overnight borrowing but is tied to many consumer debt instruments.
• Markets currently are pricing in only a 1-in-3 chance of the funds' rate climbing above 4% next year. The Fed this year has raised rates four times for a total of 2.25 percentage points. Markets are pricing in a third consecutive 0.75 percentage point increase at the September meeting and looking for rate cuts to start in the fall of 2023.
• Mester said she anticipates the rate increases to slow economic growth, which she sees as running “well below 2%” while the unemployment rate rises and financial markets remain volatile. She expects inflation to fall to a range of 5%-6% this year and then get closer to the Fed’s target in subsequent years.
• In one concession to those looking for lower rates, she said she does not think the Fed necessarily will have to keep raising rates until inflation hits the central bank’s 2% goal. But she said policymakers must remain vigilant.

(Source: CNBC)