Fed's Mester says inflation hasn't peaked and multiple half-point rate hikes are needed

Cleveland Federal Reserve President Loretta Mester said Friday that she doesn’t see ample evidence that inflation has peaked and thus is on board with supporting a series of aggressive interest rate increases.

“I think the Fed has shown that we’re in the process of recalibrating our policy to get inflation back down to our 2% goal. That’s the job before us,” Mester said in a live interview on CNBC’s “The Exchange.”

“I don’t want to declare victory on inflation before I see really compelling evidence that our actions are beginning to do the work in bringing down demand in better balance with aggregate supply,” she added.

Mester spoke the same day the Bureau of Labor Statistics reported that nonfarm payrolls rose by 390,000 in May, and, importantly, that average hourly earnings had increased 0.3% from a month ago, a bit lower than the Dow Jones estimate.

While other recent data points have shown that at least the rate of inflation increases has diminished, the policymaker said she will need to see multiple months of that trend before she’ll feel comfortable.

“It’s too soon to say that that’s going to change our outlook or my outlook on policy,” Mester said. “The No. 1 problem in the economy remains very, very high inflation, well above acceptable levels, and that’s got to be our focus going forward.”

Recent statements from the rate-setting Federal Open Market Committee indicate that 50 basis point — or half-point — rate increases are likely at the June and July meetings. Officials are then likely to evaluate the progress that the policy tightening and other factors have had on the inflation picture. A basis point equals 0.01%.

But Mester said any type of pause in rate hikes is unlikely, though the magnitude of the increases could be reduced.

“I’m going to come into the September meeting, if I don’t see compelling evidence [that inflation is cooling], I could easily be at 50 basis points in that meeting as well,” she said. “There’s no reason we have to make the decision today. But my starting point will be do we need to do another 50 or not, have I seen compelling evidence that inflation is on the downward trajectory. Then maybe we can go 25. I’m not in that camp that we think we stop in September.”

Mester’s comments were similar to statements Thursday from Fed Vice Chair Lael Brainard, who told CNBC that “it’s very hard to see the case” for pausing rate hikes in September. She also stressed that quashing inflation, which is running near 40-year highs, is the Fed’s top priority.