Fed’s Mester repeats call for frontloading interest rate hikes

March 23, 2022

(Reuters) -The U.S. Federal Reserve needs to act aggressively to bring down high levels of inflation by hiking interest rates in bigger increments in the first half of this year and beginning to reduce its balance sheet, Cleveland Fed Bank President Loretta Mester said on Wednesday.

“I would like to frontload some of that,” Mester said on a call with reporters when asked about the path of interest rate increases this year. “I think it’s important that we start moving that rate up and I think that better positions us if we do it earlier rather than later for what happens in the second half of the year.”

Mester said on Tuesday that half-percentage-point interest rate hikes should not be off the table, and noted her own view that about 2.5% is an appropriate level by the end of 2022 and would require “some” such rate rises.

Mester also told reporters there is no barrier to the U.S central bank hiking interest rates and beginning to reduce its balance sheet at the same policy meeting. Fed Chair Jerome Powell has said over the past week that action on beginning to reduce the balance sheet could come as early as next policy meeting on May 3-4.

“I think given the situation we’re in and the communications that Chair Powell has already made about the balance sheet process, I don’t have concerns that that would be destabilizing and I think that we have to recognize inflation is very elevated,” Mester said, noting financial markets could handle such a move. “We have to do what we can with both our policy tools to get inflation under control.”

(Reporting by Lindsay Dunsmuir; Editing by Franklin Paul and Jonathan Oatis and Chizu Nomiyama)