It does not depend on inflation

By Ann Saphir and Howard Schneider

JACKSON HOLE, Wyo. (Reuters) – Cleveland Federal Reserve President Loretta Mester said on Saturday she would base her decision on whether to support a third straight 75 basis point rate hike next month on inflation data in the US and not in the closely watched data. job fair.

Fed Chairman Jerome Powell said on Friday that the Fed would raise borrowing costs high enough to start biting growth, soften the labor market and lower inflation, but said the size of its rate hike September will depend on the “total” of the data before then. . [L1N30219A]

The US Labor Department releases its estimate of September job gains next Friday and the consumer price index a week ahead of the September 20-21 Fed meeting. The University of Michigan will release closely watched inflation expectations data on September 16.

“I don’t have fat at this point,” Mester told Reuters on the sidelines of the central bankers’ annual meeting in Jackson Hole, Wyoming, adding data on inflation and the outlook for inflation will guide her calculus. “We haven’t really seen, to my satisfaction, convincing evidence that inflation is on the way down – I’m not even convinced it’s peaked yet.”

Mester also said she envisions raising the U.S. central bank’s policy rate to just above 4 percent by early next year and then keeping it there through 2023. The Fed is currently targeting the of in the range of 2.25%-2.5%.

“I don’t see the Fed Funds rate coming down next year,” he said. This is contrary to market expectations for a slight reduction, possibly in response to a weakening economy or a drop in inflation.

With the job market very tight, Mester said she doesn’t expect a recession. He also does not expect the unemployment rate, now at 3.5%, to rise to more than 4.25%, much less the 5%-6% that some analysts have said may be required to really bring down inflation which, by the Fed’s preferred measure, it rose 6.3% in July.

That measure, the personal consumption expenditures price index, fell from June’s 6.8 percent, but is above the Fed’s 2 percent target from March 2021.

Mester’s remarks underscore complete unity among Fed policymakers on the need to raise interest rates further to beat inflation, regardless of the hit to households as the unemployment rate rises.

But they suggest there is room for debate about how far they should go. Atlanta Fed President Rafael Bostic, for example, said on Friday that he sees the need for another hike of 100 to 125 basis points, which would bring the target rate somewhere between 3.25%-3.75%.

While rising unemployment will hurt households, things would be worse if the Fed does not act, Mester said, echoing Powell’s remarks on Friday.

“Inflation right now is causing pain,” Mester said. “Right now inflation is still very high, it’s unacceptably high, and it’s just going to take more action on the part of the Fed to push it down that downward path.”

(Reporting by Ann Saphir and Howard Schneider; Editing by Chizu Nomiyama)

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