Fed’s Mester says further rate hikes will depend on incoming data

Bonds

Federal Reserve Bank of Cleveland President Loretta Mester said Friday’s jobs report didn’t change her view that the labor market remains strong, and that further interest-rate hikes will depend on additional incoming data.

“The inflation rate is still too high, the level of inflation remains high, but at least we’re seeing progress on it,” Mester said Friday during an interview with CNN International. “And whether we need to tighten monetary policy a bit further or not is really going to depend on all the data that we get between now and our next meeting.”

Despite the continued strength, Mester said the labor market is gradually cooling, with employers in her district telling her they’re not having as much trouble finding workers. She also pointed to the cooldown in wages in Friday’s report as further evidence of slowing inflation.

Mester said also policymakers’ discussion is moving to how long the Fed should hold its benchmark rate high for now that rates are either at or near their peak.

“I thought it was pretty likely we might need to do another rate hike this year, but I’ll make that decision once I get into the room in November, at our next meeting,” she said. 

Fed officials last month left the target range for their benchmark rate unchanged at 5.25% to 5.5%, a 22-year high. Projections published at the same time showed 12 out of 19 policymakers expected one more rate increase for this year, and that officials see fewer rate cuts in 2024 than previously anticipated.

US employers added a whopping 336,000 jobs in September, far above economists’ projections ahead of Bureau of Labor Statistic’s release Friday. Average hourly earnings increased 0.2% last month and were up 4.2% from a year earlier, the smallest annual advance since mid-2021. Earnings for nonsupervisory employees, who make up the majority of workers, posted the smallest back-to-back monthly increases since 2020.

Mester said growth is “strikingly strong,” and reiterated she would like the Fed to reach its 2% inflation target by the end of 2025.

Mester said earlier this week that she would support another interest-rate increase at the Fed’s next policy meeting if the economy is performing about the same as at the time of the September gathering, adding that the decision will be based on incoming data. The Cleveland Fed chief does not vote on monetary policy decisions this year. 

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