Views on the Economy and Monetary Policy: In a Good Place and Ensuring We Reach an Even Better One

Loretta Mester

Speech from Federal Reserve Bank of Cleveland

Abstract: Monetary policy is in a good place from which to assess and respond to these risks to the outlook. The current strength in labor market conditions and the strong spending data give us the opportunity to keep the nominal funds rate at its current level while we gather more evidence that inflation truly is on a sustainable and timely path back to 2 percent. This is better than finding ourselves in a situation where we begin easing too soon, undo some of the progress we have made on inflation, potentially destabilize inflation expectations, and then have to reverse course. If the economy evolves as expected, I think we will gain that confidence later this year, and then we can begin moving rates down. My base case is that we will do so at a gradual pace so that we can continue to manage the risks to both sides of our mandate. Of course, if downside risks materialize, we would have the opportunity to move rates down more quickly, just as we raised rates more aggressively than usual to combat rising inflation. Or if inflation appears to be stalling at a level above our goal, we would have the opportunity to maintain a restrictive stance for longer. Our policy actions will depend on how the economy and the risks evolve. When our goals of price stability and maximum employment are achieved, the economy will be in an even better place than where it is today.

Keywords: Monetary policy; inflation; economic conditions; labor market; consumer spending (search for similar items in EconPapers)
Pages: 12
Date: 2024-02-06
New Economics Papers: this item is included in nep-ban and nep-mon
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