Former Cleveland Fed Pres. Mester: No convincing evidence inflation is on downward path back to 2%

Summary

Former Cleveland Fed President Loretta Mester joins ahead of the Fed's policy meeting and says she expects the Fed to raise rates and that it should. She argues inflation is not convincingly on a path back to 2%, while demand and investment are strong and the labor market is at maximum employment. She prefers a 25 basis point hike over 50 basis points but sees more than one increase as necessary and wants the Fed prepared to do more if inflation does not fall. She also says the long end of the bond market wants credible Fed action to bring inflation down.

• Fed policy meeting begins with markets focused on a likely rate hike.
• Mester expects and supports a rate increase at this meeting.
• She says inflation lacks convincing evidence of a downward trend to 2%.
• Strong demand, investment, and a balanced labor market support further tightening.
• She prefers 25 basis points over 50 but expects more than one hike.
• She says the long end of the bond market wants credible Fed inflation action.
• Oil and overlapping supply shocks are cited as risks to embedding high inflation.