Mester: No 'compelling reason' to wait for another Fed rate rise - Financial Times

May 31, 2023 6:35 AM EDT -- The Federal Reserve does not have a "compelling reason" to push pause on its interest rate hiking cycle at its next meeting, according to Cleveland Fed President Loretta Mester.

In an interview with the Financial Times, Mester said that more rate increases may be necessary in order to eradicate what she described as "embedded" and "stubborn" U.S. inflationary pressures.

She told the FT that her thinking around the issue will be influenced by the latest nonfarm payrolls figures. Economists expect the report, which is due out on Friday, to show that the world's largest economy added 180,000 roles in May, down from 253,000 in the prior month.

Only extraordinary market volatility or some other shock to the financial system would support skipping a further rate rise, she also said to the FT. The debt ceiling deal forged last weekend removes one of these key sources of economic uncertainty, Mester added.

Her comments point to an ongoing debate within policymaking circles over whether the rate-setting Federal Open Market Committee should forego lifting borrowing costs at its two-day meeting beginning on June 13. At its last gathering earlier this month, the FOMC brought rates up to a range of 5% to 5.25% -- its tenth consecutive hike in just over a year.

Several of Mester's colleagues have also suggested that another rate rise could be in order next month. However, Fed chair Jerome Powell has hinted that a pause may be necessary, noting that turmoil in the financial services sector this year could slow down the economy to a point where the U.S. central bank does not need be as aggressive with its policy decisions.

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