Cleveland Fed President Loretta Mester recently challenged the prevailing market expectation of an imminent interest rate cut in March. In an interview on Bloomberg television, Mester cautioned against rushing into such a decision. “It’s difficult to accurately predict the future,” she explained, emphasizing the importance of monitoring the evolving state of the economy. In her estimation, March may be too soon for a rate cut.
Mester pointed out that the December Consumer Price Index (CPI) data indicates that the Federal Reserve still has work to do in order to establish a sustainable path towards achieving its 2% inflation target. To align inflation more closely with this target, Mester believes that housing costs and wages need to moderate.
As a voting member of the Fed’s interest-rate committee this year, Mester will play a significant role in shaping monetary policy. She revealed her intention to retire at the end of June upon the expiration of her term. However, she emphasized that there is still unfinished business and that achieving a “soft landing” cannot be considered a done deal.
This year, the Fed will have the opportunity to carefully consider both inflation and the labor market when formulating policy. In contrast, the past two years primarily focused on bringing inflation under control. Mester stressed the importance of maintaining both healthy labor market conditions and a sustainable, timely return of inflation to 2%.
The impact of Mester’s comments on the market was evident as stocks, including DJIA SPX, experienced a decline in Thursday’s trading. Simultaneously, the yield on the 10-year Treasury note BX:TMUBMUSD10Y increased slightly to 4.04%.
In summary, while market expectations regarding an imminent interest rate cut in March may need to be revisited according to Cleveland Fed President Loretta Mester, the Federal Reserve remains committed to addressing inflation concerns. The focus will be on striking the right balance between inflation and a thriving labor market while ensuring a sustainable and timely return to the desired target of 2%.
