The Federal Reserve's hawkish stance is reiterated! Harker says interest rates are "not tight enough" and that now is the time for anti-inflation action.

Cleveland Federal Reserve President Loretta Mester reiterated on Thursday the need for the Fed to take action to curb inflation. She believes that the current interest rates are insufficient to significantly restrict economic activity, and therefore, we cannot expect inflationary pressures to ease on their own without further policy constraints. In an interview in Jackson Hole, Wyoming, Mester stated that it is appropriate at this time to impose a certain degree of restriction on the economy to help bring inflation back to the Fed's target level. She warned that the longer inflation stays above the target, the more difficult it will be to bring it back down to that level in the future. Mester is one of the more hawkish officials within the Federal Reserve. At the monetary policy meeting held in July, she voted against alongside two other officials, advocating for a 25 basis point rate hike. However, the Fed ultimately decided to keep the benchmark rate unchanged, marking the fifth consecutive meeting in which no changes were made. She once again emphasized the need for measures to further suppress inflation, demonstrating that her position on continuing rate hikes has not significantly changed. Recent inflation data has also become an important basis for hawkish officials. Data released by the U.S. Bureau of Economic Analysis on Wednesday showed that the Fed's favored inflation metric, the Personal Consumption Expenditures (PCE) price index, increased by 3.7% year-on-year in July. Excluding the volatile food and energy prices, core PCE rose by 3.3% year-on-year. Both figures are significantly above the Fed's long-term inflation target of 2%. Mester is particularly concerned that prolonged high inflation may ultimately alter consumer behavior and psychological expectations in the U.S. U.S. inflation has remained above the Fed's target for more than five years. Mester stated that the real risk of not achieving the 2% inflation target over the long term is that the public could gradually develop an "inflation mindset" and begin to adjust their consumption and economic decisions accordingly. She noted that this situation has not yet fully materialized, but recent communications have caused her some concern. If consumers and businesses widely begin to believe that high inflation will persist for the long term, inflation expectations may further solidify, making it more difficult for the Fed to restore price stability in the future. Mester believes that the current performance of capital markets also indicates that the Fed's existing interest rate levels have not imposed a sufficiently obvious restriction on credit and economic growth. She pointed out that there are currently IPOs in the market reaching the trillion-dollar level, while at the same time, debt issuance is also hitting record highs. She stated that in such a market environment, it is hard to argue that the U.S. economy is truly in a restricted state. This judgment implies that, in her view, even though current interest rates are at a relatively high level, financial conditions remain relatively loose, and corporate financing as well as capital market activities are still active, suggesting that the existing monetary policy may not be sufficient to independently drive a sustained decline in inflation.