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Fed to bring interest rate to 4%

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Cleveland Fed President Loretta Mester said that she does not see financial stability problems for the US that would alter the Fed’s campaign to lower soaring inflation through interest rate hikes. "My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there. I do not anticipate the Fed cutting the fed funds rate target next year," Mester pointed out.

It appears the Fed is likely to bring the key rate to 4% from the current range of 3.00%-3.25% in the near future.

The Cleveland Fed chief said that the Fed is still far from declaring victory on inflation. Therefore, the regulator’s top priority is to tame soaring consumer prices. At the same time, the smooth functioning of the market is very important as with difficulties in its "mechanism", the main goals of monetary policy will not be achieved.

Earlier, the Fed was reluctant to hike rates aggressively. However, it had to take a hawkish stance due to galloping inflation. Consumer prices have already reached a four-decade high. Some markets have suffered significant losses due to recession fears.

Mester also sees no reason for slowing down the pace of monetary tightening. According to preliminary forecasts, in 2023 the Fed will raise the interest rate to 4.6%. Some analysts believe that the figure may be higher. Loretta Mester assumes that it is crucial to hike the rate above 4% as it may help lower inflation. The strong dollar is a helpful force to lower US inflation as well.

The central banker also warned against paying great attention to data showing a decline in the nation's money supply. Usually, investors see the drop as a sign that future inflation levels will fall. "Money supply hasn't been that reliable an indicator for a long time," Mester said. Measurements of the money stock are "not figuring into my calculus at the moment."

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