Pace of Fed hikes from September depends on inflation: Mester

“If, by the September FOMC meeting, the monthly inflation readings provide compelling evidence that inflation is coming down, then the pace of rate increases could slow,” Mester said Thursday, referring to the Federal Open Market Committee that sets monetary policy. “But if inflation has not moderated, then a faster pace of rate increases may be necessary,” he said at a virtual event hosted by the Philadelphia Business Economics Council, according to his prepared remarks.

Fed officials raised their benchmark interest rate by half a point in May and signaled there would be similar increases in June and July as they work to quickly get rates to a level that neither stimulates nor slows the economy. Minutes from the Fed’s May meeting showed officials are more open about what action to take in September, depending on what happens with inflation.

Atlanta Fed President Raphael Bostic said last month that the central bank could consider pausing in September if inflation falls faster than expected over the summer. But on Thursday, Fed Vice Chair Lael Brainard argued that it would be “very difficult” to see a case for a pause while policymakers clamp down on the highest inflation in decades.

Mester, who votes on monetary policy decisions this year, said he would need to see “compelling evidence” that inflation is receding, including several months of declining readings, before he could conclude that inflation peaked. “I will need to see several months of sustained downward monthly readings for inflation. I haven’t seen that yet,” he said.

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Officials also began reducing the Fed’s $8.9 trillion balance sheet, a process that should push rates higher. The Fed’s next monetary policy meeting will be held in two weeks, on June 14-15.

Original Note:

Mester Says Fed Hiking Pace From September Hinges on Inflation

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