The Fed: Fed isn’t ruling out 75 basis point moves forever, Mester says

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The Federal Reserve isn’t ruling out 75 basis point moves forever, but a pace of smaller 50 basis point moves “seems about right to me,” Cleveland Fed president Loretta Mester said Tuesday.

“I think the pace we’re going right now seems about right to me. We’ll be able to get more information after we do a couple of those,” Mester said, in an interview on Bloomberg Television.

Mester said she wasn’t ruling anything out in the second half of the year. If inflation is not moving down, the Fed might have to speed up the pace of its rate hikes.

Fed Chairman Jerome Powell signaled last week the central bank would hike rates by half-percentage-point at the next two meetings in June and July. He took a larger 75 basis point move off the table.

Fed officials who have spoken this week, including Mester, have all backed his plan.

Earlier Tuesday, New York Fed President John Williams and Richmond Fed President Tom Barkin both said that the central bank’s effort to bring inflation down doesn’t automatically mean the economy will tumble into a recession.

Eventually, Mester said the Fed may have to raise its benchmark interest rate into restrictive territory.

“Given where inflation is now, I suspect we’re going to have to move above neutral, but I can’t tell you exactly how far above neutral,” she said.

“We’ve got to see how the economy plays out in the second half of this year — into next year — to answer that question,” she said.

“We’ve just got to get this inflation under control,” she added, describing it as “way too high.”

The Dow Jones Industrial Average
DJIA,
-0.58%

opened higher on Tuesday but fell into negative territory as morning trading continued. The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.945%

fell below 3%.

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