The President of the Federal Reserve of Cleveland, Loretta Mester, said on Tuesday that if the US economy performs as she expects, it could open the door to cuts in the basic interest rate, but she is not yet ready to offer any timetable for a less restrictive monetary policy amid ongoing inflation uncertainty.
![mester-from-the-fed-is-open-to-interest-rate-cuts-if-it-becomes-evident-that-inflation-is-subsiding-further](https://realcom.com.br/wp-content/uploads/2024/02/mester-from-the-fed-is-open-to-interest-rate-cuts-if-it-becomes-evident-that-inflation-is-subsiding-further-750x375.jpg)
“Monetary policy is in a good position to assess and respond” to risks to the outlook, Mester said in a speech to the Ohio Bankers League.
“The current strength of labor market conditions and the strong spending data give us the opportunity to hold the basic rate at its current level while we gather more evidence that inflation is truly on a sustainable and timely path back to 2%,” she said.
As for the outlook for a reduction in the short-term Fed rate, Mester said that if the US economy advances as expected, US central bank officials will gain confidence that pressures on prices are easing and “then we can start to reduce rates. My base case is that we will do this at a gradual pace so that we can continue to manage risks on both sides of our mandate.”
But Mester also said it is possible to have no change in monetary policy. “If inflation seems to be stuck at a level above our target, we would have the opportunity to maintain a restrictive stance for longer,” she said.
“There are reasons to be cautious about assuming that the rapid pace of disinflation last year will be sustained as inflation approaches the 2% target,” said Mester. This is partly because reduced supply chain pressures have been instrumental in easing price pressures and may not contribute in the future.
Mester said that “while inflation may prove more persistent this year, my base forecast is that, under appropriate monetary policy, inflation will continue to decline over time toward our 2% target.” She did not provide a timetable for this to happen, although some believe it could occur as early as this year.