Federal Reserve Bank of Cleveland President Loretta Mester told FT that the inflation this year was much higher than she had expected it to be. She also acknowledged that she wishes that the Fed policymakers had started rate hiking earlier than they actually had done. "In terms of what could we have done differently, it’s probably true that we could have started raising rates before we did, because we actually pivoted our discussion about interest rate increases in the outlook for policy before we made the first fed funds rate increase in March," she said.
Mester also unveils that she believes inflation is going to move back down next year. "That would be good, because it would mean we’ve actually made material progress on inflation," she added.
In addition, Mester noted that the Fed's policymakers are entering a new phase of policy because they have basically brought the funds rate up to what she thinks is the beginning of a restrictive stance and they’re moving into the restrictive territory that is necessary in order to get inflation on that sustainable downward path to 2 percent.
She added, however, that she doesn’t think the Fed is near a pause. "Given we’re beginning to move into restrictive territory, we have the opportunity to slow the pace of increases and evaluate the effects and make sure we’re being very diligent in setting monetary policy to return the economy to price stability, but also judicious in balancing the risks to minimize the pain of the journey back to price stability."
According to Mester, recession risks have increased, and the U.S. are going to see growth well below the trend over the next couple of years. She warned that there’s a lot of risk surrounding the outlook and there are shocks that could come from multiple places.