Fed’s Mester: Need “several months” of inflation moving down to call the peak

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FILE PHOTO: Cleveland Federal Reserve President and CEO Loretta Mester gives her keynote address at the 2014 Financial Stability Conference in Washington

WASHINGTON (Reuters) – Inflation will need to move lower for “several months” before the Federal Reserve officials can safely conclude it has peaked, Cleveland Fed president Loretta Mester said Friday, adding she would be ready to consider faster rates hike by the September Fed meeting if the data do not show improvement.

“Risks to inflation remain strongly on the upside, especially in the midst of the continuing war in Ukraine and the potential that the zero-COVID policy in China will further disrupt supply chains. I will need to see several months of sustained downward monthly readings of inflation before I conclude that inflation has peaked,” Mester said in remarks to a monetary policy forum.

With broad support for half-point rate increases at the Fed’s June and July meetings, Mester said this fall will be a pivotal time to take stock of whether price increases are slowing from their current 40-year high or not – adjusting the pace of rate hikes accordingly.

“If by the September (Fed) 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.

“With some luck, supply chain disruptions will begin to abate and labor market participation will continue to rise, helping to ease supply constraints and allowing supply in product and labor markets to come into better balance with demand.  But we cannot rely on luck.”

(Reporting by Howard Schneider)

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