Cleveland Fed chair sees 1 more hike, holding rates high for some time

By Ovunc Kutlu

ISTANBUL (AA) - The head of the Cleveland Federal Reserve Bank expects one more rate hike this year before holding interest rates steady for some time.

"Despite the progress, inflation remains too high. We will need to see continued progress on inflation in goods prices. Since consumers spend a larger share of their income on services, services have a higher weight in the inflation indices," Loretta Mester said Monday during a speech at The 50 Club in Cleveland, Ohio. "Moreover, the risks to the inflation forecast remain tilted to the upside."

"But oil prices are now increasing. There is the potential that they will pass through to other core prices and stall progress. In addition, because gasoline prices are particularly salient for households that have to fill up their cars or trucks once or twice a week, rising gasoline prices could begin to make consumers think inflation will be rising again," she said.

Mester said if that be the case, higher inflation could become embedded in American people's view of the US economy and affect their behaviors in ways inconsistent with price stability.

"But 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 added.

Mester said some of the uncertainty and risks that surround economic outlook include a slowdown in China, the possibility of an extended auto workers strike and the potential for a government shutdown later this year.

The Fed has made 11 interest rate hikes since March 2022 to tame record inflation that climbed to its highest in more than 40 years, but the bank skipped a rate increase last month for the second time this year, keeping the federal funds rate unchanged between the 5.25%-5.5% target range -- the highest in 22 years.