Loretta Mester has had a long and storied Federal Reserve career as both as a policy thought leader and as a noted researcher and academic. She started her career at the Philadelphia Fed in 1985 when she went to work for then Philly Fed president Charles Plosser - himself one of the leaders in the evolution of monetary theory - and went on to become his research director. In June of 2014, she became the president of the Cleveland Fed at a time when the Fed would grapple with a number of major policy issues including the the soaring inflation and aggressive rate hikes the pandemic years brought.
Loretta left the Fed this year just as officials were getting ready to starting cutting rates. She joined me at the Hoover Institution as the Shadow Open Market Committee celebrated its 50th Anniversary and as the debate around a another rate cuts in November in full swing again. Will he Fed do another 50bps rate cut, downshift to 25pbs or sit back and pause?
Loretta notes that inflation quite a bit inflations expectations a year out have come down too. “If you don't start bringing the policy rate down with it you're implicitly tightening. And given where labor markets appear to be now they're in better balance it makes sense at this point to start that new phase.”
”And you know, there's no reason to do another 50ps (cut) given where the data came in and the employment numbers did come in stronger than we expected, right? So 25 seems like the right thing at this point.
”But again, I think it would be bad for them to pause, given what message would that send: I think it would mean that sort of like stop-and -go policy, which you just don't want to be doing.”
Loretta and I talked a lot about the importance of policy dissents, the importance of clear Fed communication, and more. So dive in and see, hear what she has to say. As the policy debates rages on you will be glad you did.
Share this post