Financial Services Association, Feb. 7. On Tuesday local time, Cleveland Federal Reserve Bank Chairman Meister said he is in no hurry to start cutting interest rates. If the economy develops as expected, policymakers may gain confidence to cut interest rates “later this year,” but they are still inclined to cut interest rates three times in 2024.

On the same day, Mester claimed at a financial conference in Ohio that Federal Reserve officials wanted more evidence that inflation was moving towards the 2% target and cautioned against lowering borrowing costs too soon.

Meester has been a staunch “big hawk” of the Federal Reserve for the past two years. She has the right to vote on interest rate decisions this year, but in June of this year, Mester's term as chairman of the Cleveland Federal Reserve will end, and she is expected to step down at that time.

She pointed out that in the absence of sufficient evidence that inflation is sustainably slowing, it would be a mistake to lower interest rates too soon or too quickly. “If the economy develops as expected, I think we'll gain that confidence later this year, then we can start cutting interest rates.”

Meester said last month that it is still too early for the Federal Reserve to cut interest rates at the March meeting. New inflation data shows that the Fed's policymakers still have more work to do. Several Federal Reserve officials, including Chairman Powell, have made similar remarks in recent weeks.

In an interview after the meeting, Meister pointed out that interest rates are still expected to be cut three times this year, which is in line with the forecast she submitted before the Federal Reserve's December policy meeting. She also said that interest rate cuts do not necessarily need to be carried out at the quarterly meeting where the Federal Reserve releases the Economic Forecast Summary (SEP).

She added that a resilient labor market and strong economic growth will give the Federal Reserve time to evaluate upcoming data while keeping interest rates at current levels to ensure that inflation continues to fall as before.

Additionally, she identified several risks to the economic outlook, including increased geopolitical risks, pressure on the banking sector from commercial real estate loans, and unexpected deterioration in the labor market. So far, however, the Red Sea issue has not affected the supply chain.

In July of last year, after Fed officials raised interest rates to a 22-year high of 5.25%-5.5%, the Fed has kept its policy unchanged since then as inflation continues to cool down, and hinted that the next step might be to cut interest rates.

The market originally expected the Federal Reserve to make this decision at the March meeting, but after comments from Federal Reserve officials and the release of a strong employment report for January, the market turned these bets to the May or June policy meeting.

Meester said that the Federal Reserve's job now is to ensure that the economy reaches a better place by adjusting monetary policy to achieve our dual mission goals, namely price stability and maximum employment.

She pointed out that increased productivity and a strong job market may mean that neutral interest rates (that is, policies that neither stimulate nor restrict) have risen in the post-pandemic economy. She said this may mean that the policy will need to remain restrictive for a longer period of time before price stability can be fully restored and employment maximized.

Editor/Corrine