Cleveland Fed President Loretta Mester (voting FOMC member) speech on monetary policy (402.35 +10.01)
"The Fed is committed to using its tools to get inflation under control by bringing excess demand into better balance with constrained supply. It will likely take some time for inflation to reach our longer-run goal of 2 percent because several of the factors that have contributed to the very high inflation readings are supply-side factors, which monetary policy cannot affect, and because inflation tends to be persistent. But as we recalibrate our policy, I will be looking for compelling evidence that inflation is on a downward trajectory toward our 2 percent goal. We will be able to gauge improvement by looking at the monthly changes in inflation readings to see if inflation is beginning to move down. The monthly increase in the core PCE price index in March was little changed from its February reading, and the monthly reading of the Cleveland Fed's median PCE inflation moved down in March. These are positive signs, but in April, monthly CPI inflation increased, and risks to inflation remain strongly on the upside, especially in the midst of the continuing war in Ukraine and the potential that the zero-COVID policy in China will further disrupt supply chains. I will need to see several months of sustained downward monthly readings of inflation before I conclude that inflation has peaked.
The current target range of the federal funds rate is 75 to 100 basis points. This is well below the range of estimates of the longer-run neutral nominal policy rate, which neither stimulates nor restrains economic activity. For example, in the March Summary of Economic Projections of FOMC participants, the range of estimates of the longer-run fed funds rate was 2 to 3 percent. The real fed funds rate is still negative. So given economic conditions, ongoing increases in the fed funds rate are called for, and unless there are some big surprises, I expect it to be appropriate to raise the policy rate another 50 basis points at each of our next two meetings."
