Moments after the release of the US preliminary employment data, Cleveland State Fed member Loretta Mester spoke, stressing that it is too early to say whether the Fed will raise interest rates in May.
However, Meester expected rates to rise slightly above these levels, and would be held for a period of time after they were raised. It confirmed that the US central bank is likely to have more hikes in interest rates in the future amid indications that the recent banking sector problems have been contained.
“To maintain inflation on a continuous downward path towards the 2% target, monetary policy must be tightened, and this will happen with the federal interest rate moving above 5% and staying at these levels for some time.”
“I hope we don’t tighten our monetary policies until something breaks,” she added. She added, “Bankers are telling the Fed’s policy makers that credit quality is within the safe range.”
Meester also indicated that she did not know how long the effects of the banking turmoil would last.
She stressed that the tension between the Bank and the Federal Reserve sector has led to increased uncertainty about the path of interest rates.
In her remarks, Meester said she expected growth and employment to slow and inflation pressures to ease.
Meester said there should be a “measurable improvement” in inflation as price pressures ease from their current 5 percent increase year on year to 3.75 percent this year and 2 percent by 2025.
She said growth must slow to below-trend levels this year before picking up next year. It said unemployment, now at 3.6 percent, should rise to between 4.5 percent and 4.75 percent by the end of 2023.
Also read: Urgent: The release of preliminary employment data.. and the Federal Reserve must review its policies now
Interest pricing now
The markets are now pricing the interest rate at the meeting scheduled for next May, by fixing the interest rate instead of increasing it by 25 points, as the Fed’s follow-up tool on the Saudi Investing website shows that expectations show that 35.7% expect a rate hike by 25 points, after it was 42% the day before. The tool also indicates that it is holding at 64.3%, up from 58% the previous day.