Cleveland Fed President Hamaek: The Fed may need to maintain interest rates stable for a longer period of time.

The President of the Federal Reserve Bank of Cleveland, Loretta Mester, said on Tuesday that the Fed needs to maintain stable interest rates for a longer period of time to wait for further decline in inflation and assess the impact of new government policies on the economy. Speaking at an event in Lexington, Kentucky, she said in a prepared speech, "We have made good progress, but the 2% inflation target has not yet been achieved. As long as the labor market remains healthy, I need to see more evidence that inflation is sustainably returning to 2% before further adjusting policy." Mester emphasized that current monetary policy needs to be patient, primarily based on two key factors. First, she mentioned that there are still upside risks to inflation, particularly strong growth in consumer spending and the potential lagged effects of last year's rate cuts on economic activity. Secondly, she highlighted the uncertainty brought by new government policies, including policy changes in regulation, taxation, immigration, and tariffs. Mester stated that the Fed needs time to analyze the impact of these policies and adjust monetary policy accordingly. "For example, with tariffs, we need to be patient in evaluating their ultimate impact," Mester noted. "Given the recent elevated inflation readings, the risks to the inflation outlook still skew to the upside, which could delay the process of inflation returning to 2% and further increase the risks of embedded inflation in the economy." Just the day before Mester's speech, President Trump ordered a 25% tariff on steel and aluminum imports, as well as a 10% tariff on goods from China. Additionally, although the 25% tariffs on Canada and Mexico are currently delayed, their fate is still undecided. The uncertainty of these policies requires the Fed to carefully evaluate the economic environment to ensure the adaptability of monetary policy. Mester reiterated that the Fed's current policy is only "modestly restrictive," and added that the Fed "may already be at or near neutral levels." In subsequent discussions, Mester stated that she does not expect a rate hike in 2025. "While my basic expectation is not for a rate hike this year, the uncertainty of policies is still significant, and we need to closely monitor all policies and their impact before making a decision," she said. During the previous month's meeting, Fed officials decided to keep rates unchanged, after three rate cuts in the second half of 2024. However, at the December meeting last year, Mester voted against a third consecutive rate cut, believing that rates should remain unchanged until there is clearer evidence of declining inflation. Mester stated that she will closely monitor inflation data early this year to see if businesses will implement significant price increases as they did at the beginning of last year. The latest data on the Consumer Price Index (CPI) will be released on Wednesday.