Fed master questions needed for upcoming 'surprise' rate hike

Cleveland Federal Reserve Chair Loretta Mester said she would prefer to raise interest rates quickly to bring inflation down, but not too fast to disrupt the economic recovery.

That means it's most likely in favor of a 50 basis point hike at the Fed's next meeting and possibly a few more after that, but not as much as 75 basis points, as Fed Chair James Bullard signaled earlier in St. Louis this week. The base point is 0.01 percentage point.

"My own opinion is that we don't need to go there at this point," Mester told CNBC's Closing Bell when asked about the 75-point move by host Sarah Eisen. "I prefer to be more careful and think about what we want to do."

Mester said he wants the Fed to raise interest rates to 2.5 percent by the end of this year, which he and many Fed officials see as "neutral" or neither stimulating nor reducing growth.

The federal funds rate determines which banks charge each other overnight loans while also serving as a benchmark for various forms of consumer debt. It is currently in a 0.25% to 0.5% range after rising a quarter percentage point in March.

"I would favor a time when the economy grows 50 basis points and maybe a few more to hit the 2.5% level by year-end," Mester said. "I think it's a better way. ... I prefer this systematic approach to a surprise 75 basis point [increase]. I don't think it's necessary for what we want to achieve with our policy."

While consistent with the Fed's recent announcements, the two employees' remarks coincided with a new round of stock and bond selling on Wall Street. Mester called the Fed's policy deviation from its historically high adjustment rate during the pandemic era "an over-calibration of monetary policy."

"We're trying to tell the market where we see the economy and why monetary policy needs to move away from these truly extraordinary housing levels that were needed at the pandemic," he said.

"Of course, our goal is to do this in a way that supports expanding and maintaining a healthy labor market," added Mester.

According to CME Group's FedWatch tracking tool, current market prices suggest the Fed is accepting the fund's rate slightly earlier than Mester said - possibly up to 2.75% after forecasts of 50, 75, 50, 25, 25, and 30 hikes, respectively. Percent. Twenty-five basis points for the six sessions remain until the year's end.