By Ann Saphir
(Reuters) – Cleveland Federal Reserve Bank President Loretta Mester said on Monday that the Federal Reserve has Rates should be raised and policy kept restrictive for some time – if mistakes are to be made, the Fed is doing too much better than too little.
“When there is uncertainty, it is better for policymakers to act more aggressively, because aggressive and pre-emptive action can prevent the worst-case outcome from actually happening,” Mester said in preparing Good speech delivered to MIT.
Mester said she would be “very cautious” in assessing inflation and would need to see monthly readings fall for several months to be confident that inflation has peaked. Likewise, she said she would be “warning” of “complacency” with longer-term inflation expectations that have fallen recently but may not be as firm as hoped and could rise again.
Policymakers facing uncertainty about inflation expectations should risk making policy too tight rather than too loose, she said.
“Research shows that falsely assuming long-term inflation expectations are well anchored at levels consistent with price stability, when in reality they are not, is more expensive to the economy than assuming they are Mester said.
Fed last week raised policy rate to 3%-3.25% 3rd time in so many meetings75 up the basis point.
Policymakers signaled at their next meeting in November that another rate hike of a similar magnitude is likely, followed by a few There will be more rate hikes this month as the U.S. central bank seeks to keep borrowing costs high enough to hit economic growth and lower inflation to three times its target, even at the expense of rising unemployment.
“We need to raise the policy rate further,” Mester said. “In order to sustain inflation down to 2 percent, monetary policy needs to take a restrictive stance, with real rates moving into positive territory and staying there for some time.” ”
