Fed official calls for central bank to act aggressively

According to a statement made by president of the Federal Reserve Bank of Cleveland Loretta Mester, the Federal Reserve System of the U.S. needs to increase the rates and continue restrictive monetary policy for a period of time, as the current level of inflation is “unacceptably high.” Mester believes that even if the Fed makes a mistake, excessive tightening is still a better option than a hesitance of the country’s central bank.

As it was said by her, if there’s any uncertainty, the Fed’s officials probably needs to make more aggressive actions of pre-empting, as this way of acting might aid in avoiding the worst scenarios.

Mester also noted that it’s important to be careful while assessing the inflation dynamics, because it requires several months of observation of price change indicators to make a well-grounded statement about reaching a peak of inflation. In addition, the Cleveland Fed president said it’s crucial not to overestimate the recent lowering of long-term inflation projections in the U.S., as their growth may recover.

Last week, the Fed raised the target range of federal funds rates, which is now 3.0%-3.25%. The mentioned raise by 75 basis points became the third successive one.

The central bank officials made it known that further rate hike is possible to be delivered at the upcoming meeting in November, and such hikes will continue in the following months until a certain level of borrowing cost is reached. The required level is the one that can slow down the economy and inflation, even at a cost of higher unemployment.

According to Mester’s words, further hikes are necessary, and the officials have to continue restrictive monetary policy to bring about a steady decline of inflation levels. As she said, it’s also necessary to keep the real interest rates in a positive zone for a period of time.