On Tuesday (October 3), Cleveland Fed President Loretta Mester said that if the U.S. economy performs roughly the same as it did at the September meeting, she will support a rate hike at the Federal Reserve's November meeting.
"If at our next meeting the economy behaves in a similar way to our last meeting, I would [support] further rate hikes," Mester said on a conference call. She noted that compared with the June economic forecast, the September report sees the 2 percent inflation target being reached later.
But Ms. Mester emphasized that the Fed would make a decision at a future meeting based on economic developments at that time, and that "we will wait to see all the data and then evaluate it."
Two weeks ago, the Fed decided to keep the target range for the federal funds rate at 5.25% to 5.5%. The bank has raised interest rates 11 times since March 2022 in an effort to curb high inflation, taking them from near zero to their highest level in 22 years.
A "dot plot" released at the same time showed that most central bankers see one more 25 basis point rate rise this year and forecast only about 50 basis points of rate cuts next year. Mester said officials believe "rates are probably close to their peak" but will need to stay higher for some time.
Mester also said officials are watching the recent marked rise in long-term U.S. Treasury yields, a sign she believes could help tighten financial conditions and slow economic growth. She noted, however, that it is unclear whether the rise in Treasury yields will continue.
Mester expects U.S. inflation risks remain skewed to the upside and may not reach the 2 percent target until the end of 2025. As a result, she doesn't expect a rate cut to happen anytime soon. Atlanta Fed President Rafael Bostic, speaking at the same time, also said the central bank should keep interest rates at higher levels "for an extended period."
Bostick said, "I'm not in a hurry to raise rates further, but I'm not in a hurry to lower them either." I hope we stay the course [with high interest rates], which is the right thing to do for a long time." He expects only one rate cut by the end of 2024.