Cleveland Fed President Loretta Mester: Want to see 'a few more months' of good inflation data
We spend a lot of time thinking, OK, are they going to cut in September? Is this going to be a November cut? It sounds like you think a lot less about timing and more just about what the data starts to slowly bleed in how many months if three months to the upside wasn't necessarily enough to say, OK, we can't figure out a trend there. How many months does it take of of inflation heading down? I mean, again, this is the how comfortable are you in assessing where inflation is going, but also the risks around that outlook. So to me, I would want to see a few more months of good inflation data, inflation coming down, you know, the short run inflation expectations starting to move down. And then, you know, then you just need to start thinking about, OK, this may be the right panoply of data and you know, poor portfolio of data, what's going on in the labor market, what's going on in inflation to actually move rates down? Because if you wait too long, right, if inflation is moving down, you're actually by maintaining the current level, you're actually becoming more restrictive, but hasn't happened to kind of go happen. You've gone from just under 1% to now you're north of, what, 2% when it comes to how we. Yeah, but we needed to get. But remember, right, it's not that the economy is happening over here and our policy is happening over here. The policies have no effect to bring that down. So you have to have these calibrated, right? You want to calibrate your policy to get inflation on that sustainable downward path. While you're watching unemployment and the diverse claims actually picking up a little bit, I guess that has to go into the Yeah. So if you go back and think about when we started raising the funds rate, you know, it was very clear inflation part of the mandate had to be key. Like the focus had to be on that. We had strong labor markets. Inflation was going up and going up at a fast clip. We had to focus only on that, right? As inflation has come down, we've gotten more balance between our dual mandate goals. And you're exactly right, the challenge going forward is to assess the risk to both parts of our mandate. Watch what's happening in the labor market, right? And take that into account. Watch what's happening on the deflation side of the mandate and make sure that we're doing the proper balance. And one thing that I've learned over the last 10 years as president and before that is you always make sure you're in a good position to be able to address risk to both parts of the mandate, right? And we're in a good position with policy right now. If things evolve differently than we anticipate, either on the employment side of things or on the inflation side of things, we're in a very good position with monetary policy right now. One of the things we spoke to Janet Yellen yesterday about was the housing market. And given high mortgage rates, the lock in effect that's happened. But as that also relates to the labor market, which is to say, you know, if you're locked in your home, you may not actually go take a job somewhere else in the country or possibly somewhere else even in your own state. How much do you think about that? And as it relates to housing, how much do you think about? It's not something I think that here and now issue, but, you know, 3-4 years from now, depending on where you think interest rates are, do you think that there's going to be a problem for folks who have to roll out of their mortgage? So all the things you're pointing out are certainly things that are part of discussions right now. In terms of how much is that affecting things. You know what, we have a inflation Research Center at the Cleveland Fed and their work basically looks at sort of how long does it take the down, you know, the moving down of rents and new leases to feed through to housing inflation. And that's going to take longer than perhaps old models would say, suggest because of some of the issues that you're pointing out. You know, right now the labor market is still very strong, right? So in some sense that's probably lower on the list of things that we're concerned about or I'm concerned about, but it is something that as you think about how things are going to evolve, that's certainly one of them. And that's what's made this cycle so interesting in the sense that, right, a lot of these underlying structural aspects of the economy influenced where the economy was going. So if you think about the pandemic, a lot of those effects of the pandemic are still with us. They're having long lasting effects in terms of Labor force participation. Just think about what happened there. We're certainly not back up to where it was if you look at the total labor force, right? That's long lasting and that'll influence how you think about the balance between full maximum employment and inflation. And that's what makes this a challenging time, but also as an economist, an interesting time to think. Some people are afraid you're going to miss the turn here, that you've missed it always in the past and now you're going to miss it again. And that they look, for example, at the inflation rate, which I get is part of a base effect kind of thing. But you guys, you've missed the inflation progress last year and now you're even forecasting as, as a group, the, the, the average official, an inflation rate that is higher than what we're probably going to get the end of May. So are you missing it? I'm pretty confident that the committee is doing good work here. We're a learning organization, right? We learn through time. We took them on board sort of where inflation went, you know, and it, and it, what it went higher than we anticipated early on, right? And then we took action. And again, that's why I think it's really important that we maintain, you know, a good place for policy because the economy could evolve differently than that modal or that median out that's in the SCP. So, you know, we put in SCPS every other meeting. We're going to be doing that. The committee will be doing that going forward. I don't think that, you know, the discussion around the table feels like, you know, we're, we're totally out of whack with what's going on with the market. If you look at sort of where the market is and where our assessments are, they've come together over time. So again, you know, we continue to assess incoming information that fades into our view of where the economy is going and where the economy is going and the risk around our forecast influences our policy decision.