Cleveland Fed President Loretta Mester He said Monday that if a mistake has to be made, it is better for the Fed to do too much than to do too little.
“When there is uncertainty, it may be better for policymakers to act more aggressively because aggressive, preemptive action can prevent the worst outcomes from occurring,” Mester said in remarks prepared for delivery to the Massachusetts Institute of Technology.
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Mester said she would be “very cautious” in assessing inflation, and would need to see several months of declines in month-on-month readings to be convinced it had peaked.
Mester said he will “avoid being complacent” on long-term inflation expectations, which have come down a bit recently but may not be as well-anchored as expected and could rise again. Policymakers facing uncertainty on inflation expectations should risk setting policy too tight rather than too loose, he said.
“Research indicates that wrongly assuming that long-term inflation expectations are well-anchored at the level consistent with price stability when, in fact, they are not, is a more costly mistake for the economy than assuming they are not. anchored when they really are,” Mester said.
“Further increases in our policy rate will be necessary,” Mester said.
“To put inflation on a sustained downward trajectory to 2%, monetary policy will need to adopt a tightening stance, with real interest rates moving into positive territory and staying there for some time.”
Source: Fx Street
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