Fed needs more evidence economy is progressing as expected

Federal Reserve (Fed) of Cleveland President Loretta Mester gave her perspective on the Fed rate outlook during a televised interview with Bloomberg.

Mester was closely followed by Richmond Fed President Tom Barkin, who broadly reiterated Mester’s stance on Fed rates.

Key highlights

Cleveland Fed President Mester:

• Fed is not “there” yet on rate cuts, want more evidence that economy is progressing as expected.
• Fed’s current evaluation is for how much longer rates to be kept high, policy kept restrictive.
• Inflation has to be coming down on a “sustainable basis” before rate cut conversation can happen.
• Fed needs to calibrate policy to achieve a soft landing.
• Slowdown of QT is not imminent, but Fed will have to begin discussing it this year.

Richmond Fed President Barkin:

• Needs to be “convinced” that inflation is headed to target.
• Will be open to lowering rates once inflation is on track to 2%.
• Banks likely want to hold more liquidity than prior to the pandemic.