There could be another rate hike coming, says Cleveland Fed

investmentnews.com:

Federal Reserve Bank of Cleveland President Loretta Mester said the central bank will likely need to raise rates once more this year and then hold them at higher levels for some time to get inflation back to its 2% target. 

However, Mester said the final decision will depend on how the economy evolves, pointing to a slowdown in China, the possibility of an extended strike by members of the United Auto Workers union and a potential government shutdown as risks to the outlook for inflation and growth.

“I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,” Mester said Monday. 

“Whether the fed funds rate needs to go higher than its current level and for how long policy needs to remain restrictive will depend on how the economy evolves relative to the outlook,” she said in remarks prepared for an event organized by the 50 Club of Cleveland, a group of business leaders and lawyers. 

Mester, who does not vote on monetary policy this year, said the rate of inflation remains too high and the risks are still “tilted to the upside.” She said rising gas prices resonate strongly with consumers, who could expect inflation to start accelerating again.

Some consumers may adjust their spending so they can afford student-loan payments, which are resuming this month after more than three years because of a federal pause put in place during the pandemic, Mester said. 

But she doesn’t expect that to cause a dramatic shift in the economy. 

“There’s definitely going to be people who are going to now have to shift some of their spending