Economy
Fed’s Mester open to another rate hike if economy stays on current path
© Reuters. FILE PHOTO: Cleveland Federal Reserve President Loretta Mester speaks in London, Britain, July 2, 2019. REUTERS/Marc Jones/File Photo
By Michael S. Derby
NEW YORK (Reuters) – Cleveland Federal Reserve President Loretta Mester said on Tuesday she is open to raising interest rates again, potentially at the U.S. central bank’s next meeting, if the current state of the economy holds, even as she acknowledged that a surge in long-term bond yields could change the monetary policy outlook.
“If the economy looks the way it did at the next meeting, similar to the way it looked at our recent meeting, I would do the further rate increase,” she told reporters in a conference call.
But Mester, who does not hold a vote on the central bank’s rate-setting Federal Open Market Committee this year, cautioned that what comes next for the Fed is still a moving target.
“I can’t really tell you right now what will happen in the November meeting, December meeting,” the official said of the policy outlook heading into the close of the year. “I probably favor going again, but again, we’re going to have to wait and see how the economy evolves.”
The FOMC is scheduled to meet on Oct. 31-Nov. 1 and again on Dec. 12-13.
Mester spoke to reporters after giving a speech late on Monday that laid out her expectation that one more rate hike in the Fed’s benchmark overnight interest rate, which is currently in the 5.25%-5.50% target range, is justified given that inflation pressures, while easing, are still too high.
The Fed kept rates unchanged at its meeting last month. Although policymaker projections issued at that meeting penciled in one more increase for the year, many traders believe that with inflation moving steadily back to the central bank’s 2% target, it will be able to hold off on further tightening.
Mester on Tuesday said that from her perspective, “the question is, how long do we need to keep monetary policy restrictive in order to be confident inflation is going to come down to 2%?” She added that “we’re going to have to keep policy restrictive for some time,” even as she refrained to say how long that would be, or when the Fed could contemplate lowering rates.
Mester said she expects inflation to return to 2% by the close of 2025. The latest Fed forecasts expect that to happen in 2026.
She also said surging bond yields – the yield on the 10-year Treasury note has risen to a level last seen 16 years ago – will affect the decisions Fed officials will make.
“We’re going to have to follow that and watch it and that will influence not only our policy decisions, but how the economy evolves,” Mester said. “Over the next year, those tighter or higher rates will have an impact on the economy and we just have to take that into account when we’re setting monetary policy.”
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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