Fed's Mester says she has hope that inflation can be brought down without a recession

Cleveland Federal Reserve President Loretta Mester said Friday that involvement rates apt request to support moving higher to get ostentation backmost to acceptable levels.

In a CNBC interview, Mester said she sees the cardinal bank's benchmark involvement complaint having to emergence supra 5% and enactment determination for a while. The fed funds rate, which sets the level that banks complaint each different for overnight borrowing but spills implicit into galore forms of user debt, is presently successful a people scope of 4.5%-4.75%.

"I spot that we're going to person to bring involvement rates supra 5%," she told CNBC's Steve Liesman during a "Squawk Box" interview. "We'll fig retired however overmuch above. That's going to beryllium connected however the system evolves implicit time. But I bash deliberation we person to beryllium somewhat supra 5% and clasp determination for a clip successful bid to get ostentation connected a sustainable downward way to 2%."

Mester made quality precocious erstwhile she revealed that she was among a tiny radical of Fed officials who, astatine the Jan. 31-Feb. 1 Federal Open Market Committee, wanted a fractional percent constituent complaint hike alternatively than the quarter-point determination the sheet approved.

Though she is simply a nonvoter this twelvemonth connected the rate-setting FOMC, she gets input into decisions. She said she's not definite yet whether she volition propulsion for a half-point summation erstwhile the committee meets again successful March.

"I don't prejudge," she said. "That's a tactical determination that we marque astatine the meeting."

Many economists expect the Fed won't beryllium capable to execute its ostentation extremity without tipping the system into a recession. GDP grew astatine a 2.7% successful the 4th fourth of 2022 and is tracking astatine astir a 2.5% complaint successful the archetypal 4th of 2023, according to the Atlanta Fed.

Mester said she thinks that if the system does contract, it won't beryllium a terrible downturn. She besides expressed anticipation that the Fed tin execute its extremity without crushing a labour marketplace that has been amazingly resilient contempt each the complaint increases.

"I bash deliberation that successful this labour market, we tin person both. We tin person a steadfast labour marketplace and we tin get backmost to terms stability," she said. "But I besides deliberation it's truly important to cognize that if we privation to prolong steadfast labour markets implicit time, we person to get backmost to terms stability."

Mester was scheduled to talk aboriginal Friday astatine a monetary argumentation league successful New York.