Will Interest Rates Go Down?
Former Fed President Loretta Mester Weighs In
Former Federal Reserve Bank of Cleveland President Loretta Mester said in an interview with CNBC Tuesday that the case for a series of 25 basis point cuts is "really close."
“If I look at the balance of risks out there. The global outlook has improved. Conditions in the financial system are quite good. The labor market is holding in quite well. And you know that corporations and consumers, their balance sheets are in great shape,”
Inflation Still a Concern
There has been some hope that the Federal Reserve might be able to pause interest rate hikes later this year or even begin cutting rates, but Mester cautioned that inflation is still a concern.
“I think we are making progress. But it's really important to recognize that we've only come down from a very elevated level to a still elevated level, and I would want to see more convincing evidence that we're on a sustainable path back to 2% before I would be taking my foot off the brake on rates,” said Mester.
The Fed's Tightrope
The Federal Reserve is trying to walk a tightrope between bringing down inflation and avoiding a recession.
“We are all committed to getting back to price stability, but we want to do it in a way that doesn't lead to a recession. And that's going to require us to tread carefully. I think we're going to make it through this. I think the economy is going to be able to withstand higher rates and still get through this,” said Mester.
Is a Recession Coming?
Mester said that she does not believe a recession is inevitable, but she acknowledged that the risks have increased.
“I don't think it's inevitable, just because I think once you start raising rates, it does add some risk to the outlook. But I'm certainly more concerned than I was a few months ago,” said Mester.
The Fed's Next Move
The Federal Reserve is scheduled to meet later and it is widely expected to raise interest rates by 25 basis points.
Mester said that she believes the Fed will need to continue raising rates, but she said that the pace of increases could slow down.
"I just think the pace of increases can be more deliberate. I'm happy that we started out with a 50 basis point increase and then a 25 basis point increase. And I wouldn't be uncomfortable with that continuing,” said Mester.
Conclusion
The Federal Reserve is facing a difficult task in trying to bring down inflation without causing a recession.
Former Fed President Loretta Mester said that she believes the case for a series of 25 basis point cuts is "really close," but she also cautioned that inflation is still a concern.
The Fed is expected to raise interest rates by 25 basis points later this month, and Mester said that she believes the Fed will need to continue raising rates, but the pace of increases could slow down.
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