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Fed’s Mester Says CPI Data Gives No Reason for Smaller July Hike

·3 min read
Fed’s Mester Says CPI Data Gives No Reason for Smaller July Hike

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Federal Reserve Bank of Cleveland President Loretta Mester said a hot inflation report for June suggested officials should raise rates by at least 75 basis points later this month, but she declined to spell out if she would favor going even bigger.

“Certainty the inflation report suggests that there’s no reason to say that a smaller rate increase than we did last time, right, because nothing moved in that direction,” Mester said Wednesday during an interview on Bloomberg Television with Kathleen Hays.

Asked if she thought a 100 basis-point rate increase should be considered this month, Mester said that decision would be made at the July 26-27 meeting and that officials would have more economic data by then to factor in. ”We’re going to have the meeting and we’re going to talk about what the appropriate path of policy is,” Mester said. “We don’t have to make a decision today.”

Policy makers will have more economic data to review before they meet in two weeks to decide on the size of the next rate increase, including an update on retail sales and a University of Michigan survey measuring consumers’ inflation expectations, Mester said. The Cleveland Fed chief said she wants to see a “series” of months in which the increases in core and headline inflation are moving down.

Pressure on Fed officials to curb price pressures mounted after another searing inflation report earlier Wednesday showed high prices are not abating. Investors responded by increasing bets that policy makers will deliver a historic one percentage-point rate hike when they meet in late July, according to pricing in interest-rate futures markets.

Fed Chair Jerome Powell told reporters last month after the central bank raised rates by 75 basis points, to a range of 1.5% to 1.75%, that either a 50 or 75 basis-point increase was likely in July. A majority of his colleagues have since then either echoed his comments or endorsed the bigger move.

“Everything is in play,” Atlanta Fed President Raphael Bostic earlier told reporters after US consumer prices rose a faster-than-forecast 9.1% in the year through June. Asked if that included raising rates by a full percentage point, he replied, “it would mean everything.”

Mester, who votes in monetary policy decisions this year, called the June inflation report “uniformly bad.”

“There was no good news in that report at all,” Mester said. “We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner.”

Economists say more aggressive rate hikes increase the risks that the US economy is pushed into a recession. A handful of banks are calling for a contraction starting this year, while others see it starting next year.

Mester said the Fed’s top priority is bringing inflation down, even if it slows economic growth.

“Right now, job one for us is to get inflation under control, and I say that knowing that the risks of recession have gone up,” Mester said. “If we don’t do this, right, we’re going to have many more problems in the economy going forward.”

(Adds more of Mester’s remarks starting in the fourth paragraph.)

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