In an interview with CNBC on Friday, Federal Reserve Bank of Cleveland President Loretta Mester said that the Personal Consumption Expenditures (PCE) Price Index released on Friday underscored the slow progress on inflation.
Breaking: US Core PCE inflation increases to 4.7% vs. 4.6% anticipated.
“It’s probably not wise to sort of pre-guess what the meeting outcome will be,” Mester said when asked whether another rate increase is warranted at the upcoming FOMC meeting.
“Tighter monetary policy is still feeding into the economy.”
“I may have to revise up my inflation forecast.”
“Everything is on the table for the June FOMC meeting.”
“Fed is very committed to lowering inflation in timely way.”
“Fed still has more data to see ahead of the June FOMC meeting.”
“Have not sees much sign of banking stress affecting credit conditions.”
“Economy has slowed quite a bit relative to last year.”
“Important for the Fed not to under tighten monetary policy.”
“Right now is the hard part for monetary policy decisions.”
The US Dollar Index stays in positive territory above 104.30 following these comments.
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The Federal Reserve’s inflation target of two percent still remains elusive, despite the central bank taking unconventional measures such as quantitative easing (QE). Cleveland Fed President Loretta Mester made this point clear in a speech made on Wednesday where she characterized the progress towards the inflation goal as slow.
In her speech, Mester noted that Headline inflation has been running below the central bank’s two percent target since 2012, while core inflation, which excludes volatile energy and food prices, has been below the target for over nine years. She suggested that the growth in the country’s personal consumption expenditure (PCE) index, a key gauge of consumer goods prices, has not done enough to excite confidence that inflation will eventually catch up.
Mester added that the PCE measure had been underperforming other metrics, such as the S&P 500 stock index, which have been soaring to new heights, making it hard to believe that the inflation will help it catch up to previous levels that generation before have experienced. This is particularly worrisome for those who look at the PCE data as a bellwether for where inflation is headed.
Mester concluded that the current state of inflation, as well as the slow progress towards achieving the two percent target, suggests that the Federal Reserve should be cautious about its current policies and hold off from changing the current policies until more progress is made.
The comments from Mester marks a change in the consensus among the Federal Reserve officials, who have been largely upbeat about the course of inflation. While the Fed has maintained a dovish stance in recent months, Mester’s comments hint that the the central bank might start to become a bit more hawkish as the PCE data continues to show slow gains.