May 19, 2022

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Mester puts 75 basis point rate hike back on table for September

Cleveland Fed President Loretta Mester on Friday put the possibility of a 75 basis point rate hike back on the table for September.

In a speech to a European Central Bank Conference, Mester said she expects to support 50 basis point rate hikes at each of the Fed’s next two meetings, set for mid-June and late July.

At that point, the Fed can look around and review the appropriate pace of further rate hikes, Mester said.

“If by the September FOMC meeting, the monthly readings on inflation provide compelling evidence that inflation is moving down, then the pace of rate increases could slow, but if inflation has failed to moderate, then a faster pace of rate increases may be necessary,” Mester said.

So a 75 basis point hike could come after the Fed’s meeting on Sept. 20-21.

Earlier this month, Fed Chairman Jerome Powell said a 75 basis point rate hike was not being “actively considered” by the Fed.

But in an interview with Marketplace Radio program on Thursday, Powell suggested he wasn’t taking such a large move firmly off the table.

Economists said Powell was mistaken for ruling out such a large move because it raises questions about the Fed’s willingness to get inflation back under control.

Mester is a voting member of the Fed’s interest rate committee and is seen as one of the more hawkish regional Fed presidents.

The Dow Jones Industrial Average
was up almost 1.5% on Friday after six days of loses.

The yield on the 10-year Treasury note remained under 3% for the fourth straight day.