Fed's Mester: We might have to go a bit higher

<ul><li>The labour market has also come more into balance</li><li>from what I see so far, that we might have to go a bit higher, that we might have to raise the policy rate a bit more.</li><li> there is still a lot of time before our next decision in September and we will get a lot of data and information by then.</li><li>Notes that gasoline prices are rising again. We have to be very attentive to that.</li><li>he longer inflation stays above 2%, the more likely it is that the risks will materialise</li><li>If we end up raising interest rates too much and the economy loses momentum more than necessary, we can lower interest rates</li><li>we will certainly not continue to raise interest rates until inflation has already fallen to 2%. Nor will we wait to lower interest rates until inflation is at 2%.</li><li> there are upside risks to our inflation forecasts, in my view</li></ul><p>Mester has made this point before:</p><p>We don't want to tighten monetary policy too much and cause unnecessary pain to the economy. But we also don't want to tighten monetary policy too little. History has taught us that the cost of returning to price stability is even higher if we tighten too little. Given the strength of the labour market and the strength of underlying demand, I believe that currently the costs of insufficient tightening are greater.</p><p>Overall, this is certainly some hawkish stuff and she will undoubtedly be advocating for more hikes. Her reasoning is compelling too.</p>

This article was written by Adam Button at www.forexlive.com.