Federal Reserve's Mester: Despite the improvement in data, inflation risks still lean towards the upside
Cleveland Fed President Mester stated that despite the encouraging latest inflation data, she still believes that the inflation risks are skewed to the upside. She believes that the risks facing the labor market are twofold and more data is needed to confirm whether inflation is on a downward trajectory. Mester's latest forecast for interest rates is 3%
According to the Zhitong Finance and Economics APP, Cleveland Fed President Mester stated that despite the favorable latest inflation data, she still believes that the inflation risks are skewed to the upside. She also mentioned that the policymakers' latest median forecast - implying only one rate cut this year - is "very close" to her own expectations for the economic outlook.
Mester stated that the lower-than-expected inflation data released earlier this week was a "gift," but she would like to see more similar data before a rate cut. She said, "We've made pretty good progress on inflation over the past two years. But it's still too high." "There's more work to be done on inflation to gain confidence that inflation is falling to 2%." She added, "I think the risks to inflation are still skewed to the upside. I think there are dual risks facing the labor market."
Mester said, "Given the progress we've made on inflation, I think we really need to see more data to truly tell us, 'Okay, we can be pretty confident now that inflation is on a downward trajectory, so we can start to ease off on the restrictions.'"
The median expectation of Fed policymakers shows that their latest forecast for the long-term stable level of interest rates has been raised to 2.8%, implying that they do not expect rates to return to pre-pandemic levels. Mester's latest forecast for this interest rate is 3%