Federal Reserve Hamaque: We can consider future rate cuts very patiently

On January 17, in the most recent Federal Reserve meeting, Cleveland Fed Chair Loretta Mester cast a dissenting vote on the decision to cut interest rates. In an interview, she stated: "We are still facing inflation issues. Although we have made remarkable progress, we need to continue this work." When talking about last month's rate cut, she added, "For me, the discussion in December was actually about whether you need to take action now or if you can be more patient and wait and see." In September of last year, Mester voted with Powell for a larger-than-expected 50 basis point rate cut. She said: "At that time, my expectation was that a 75 basis point rate cut this year would be correct." Subsequently, the Fed lowered rates by another 25 basis points in November. However by December of last year another rate cut did not prove effective for her. She said: "The data has all strengthened." As for market expectations that the Fed needs to lower rates and therefore should follow suit with cuts - such arguments fall apart under their own weight from Mester’s perspective. She said: “In my view just because something has already been digested by the market is not sufficient reason to do so.” Speaking about further interest rate cuts Mester stated: “We can be very patient.” Now she believes that today decades later it appears as though ultra-low interest rates of the 2010s were more like exceptions rather than norms. Therefore Mester considers current interest rates only moderately restrictive. She thinks tightening financial conditions recently along with rising long-term bond yields overall will help accomplish fighting inflation task set out by The Federal Reserve.