Loretta Mester, head of the Federal Reserve (Fed, US central bank) in Cleveland, said on Thursday that the risk of a recession in the US economy had increased. However, he pointed out that it is still possible to argue that a sharp recession can be avoided because the fundamental gross demand and demand for labor are strong and the supply and demand balance is better.
Speaking at the Philadelphia Council for Business Economics event, Meister argued that financial markets would be more volatile as financial conditions tightened further.
In addition, growth may slow slightly over expectations in some quarters, and the unemployment rate may move temporarily above its long-term estimates. “It will be painful, but there will be more inflation,” he said.
Monetary policy to combat inflation
The head of the Cleveland Fed also said that if inflation does not ease by September, a faster pace of interest rate hikes may be needed. On the other hand, he pointed out that if monthly measurements provide solid evidence that inflation is declining, the pace may slow down.
The central banker made the remarks at the Philadelphia Council for Business Economics event.
In the current context of high inflation, the ratio of central funds remains very negative. Therefore, for her, continuous increase is necessary. “In my opinion, as inflation is high, the interest rate will have to go above its long-term neutral level to control inflation,” he said. “But today we can not create that link because it depends on how much demand is moderate and what is happening on the distribution side,” he thought.
In the absence of major surprises, the Master commented that he considered it appropriate to raise interest rates by 50 basis points in each of the next two meetings.
With regard to the reduction in the balance sheet, the official stressed that the balance sheet will continue to shrink as long as it is close to the implementation of the monetary policy of the Central Bank.
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