Fed’s Mester says returning inflation to 2% will take ‘a few years’

Recession risks are mounting and it would take “a few years” for inflation to return to the US Federal Reserve’s 2% target, Loretta Mester, chairman of the Cleveland Fed, said Sunday.

“I’m not predicting a recession,” she said. “Recession risks are increasing, in part because monetary policy could have turned a little earlier than it did. We’re doing that now by raising interest rates, but of course there’s a lot of other stuff going on as well,” Mester said on CBS’ “Face the Nation.”

“We have slowing growth. . . and that’s ok, we want to see some slowdown in demand to better align with supply.”

Mester said that while monetary policy may target excessive demand in the economy, it will take time for the supply side to “return to a better balance.”

“It won’t be immediate to see 2% inflation, it will take a few years, but it will be falling,” she said.

US Treasury Secretary Janet Yellen admitted on Sunday that the economy would slow, but said a recession was not “inevitable”.

“I expect the economy to slow down, it is growing at a very fast pace as the job market has recovered and we have reached full employment,” Yellen said on ABC. this week. “We expect a transition to steady, steady growth, but I don’t think a recession is inevitable.”

This week, the Fed raised its key interest rate by 0.75 percentage point, the first time it has done so since 1994.

It also set the stage for much tighter monetary policy in the short term, with officials projecting rates to rise to 3.8% in 2023 and most of those increases scheduled for this year. They now fluctuate between 1.50% and 1.75%.

On Saturday, Fed Chair Christopher Waller said he would support another 0.75 percentage point interest rate hike at the next central bank meeting in July if, as expected, the data showed that inflation had not moderated enough. .

Fed Chair Jay Powell said his goal is to reduce inflation while maintaining a strong labor market.

“It will take skill and luck, but I believe it is possible,” Yellen said.

Yellen said that while there is month-to-month volatility in consumer spending, overall it has remained strong and she did not expect a drop in spending to cause a recession.

“It is clear that most consumers, even low-income households, continue to have stocks of savings that will allow them to maintain spending,” said the Treasury secretary. “I don’t see a drop in consumer spending as a likely cause of the recession in the coming months.”

The job market has also remained strong, she said, with two job openings for every unemployed worker.

Yellen reiterated the Biden administration’s argument that Russia’s war on Ukraine was partly responsible for high inflation because it raises global food and energy prices. Supply chain tangles of lockdowns in China are also contributing, she said. While those factors don’t change immediately, she said she expects inflation to drop.

“I expect that in the coming months the pace of inflation will slow down, although remember that there are a lot of uncertainties related to global developments,” she said.

Other senior officials on Sunday echoed the line that a recession was not inevitable, even as polls showed economists and business leaders expect one in the next year.

“Where we are in the economy right now is a transition and last week I talked to CEOs across industries and they are figuring out how to navigate the transition,” said Brian Deese, director of the US National Economic Council.

Deese said Biden is working with Congress on legislation to lower the costs of things like prescription drugs and utilities. “The most impactful thing we can do right now is work with Congress to pass legislation that lowers the costs of things that families are facing right now,” he said.

The White House also wants the package to include deficit-reducing tax reforms and is working with Senate Democrat Chuck Schumer to implement measures in the coming weeks, Deese said.

Biden is also looking to cut gasoline prices, and senior administration officials said Sunday that the US is considering a temporary break in the federal gas tax. Yellen said it was “an idea that is certainly worth considering” and that Biden was looking to work with Congress to try to lower gas prices.

Energy Secretary Jennifer Granholm told CNN that the Biden administration was considering a proposed gas tax exemption.

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