Fed's Mester questions the need for 'shock' interest rate hikes

Cleveland Fed President Loretta Mester stated that she supports raising interest rates by 50 basis points, possibly multiple times, but not any higher.

Mester referred to the Fed's shift away from historically high accommodation levels during the pandemic era as "the great recalibration of monetary policy."

Loretta Mester, president of the Cleveland Federal Reserve, stated that she supports raising interest rates quickly to reduce inflation, but not so soon that it disrupts the economic recovery. That means a substantial likelihood of sustaining a 50-basis-point hike at the next Fed meeting, and possibly a few more after that, but not 75-basis-point walks, as St. Louis Fed President James Bullard suggested earlier this week.

"My view is that we don't need to go there at this point," Mester said on CNBC's "Closing Bell" when asked about the 75-basis-point move by host Sara Eisen. "I'd prefer to be more deliberate and intentional about what we're doing."

Mester stated that she would love to see the Fed reduce its benchmark overnight borrowing rate to 2.5 percent by the end of this year, which she and many other Fed officials consider appropriate. The fed funds rate determines how much banks charge each other for overnight borrowing and serves as a benchmark for so many types of consumer debt.

Her remarks are consistent with what Chair Jerome Powell said on Thursday. Though both officials' statements were consistent with recent Fed communications, they coincided with a new round of selling on Wall Street in both stocks and bonds.

Mester referred to the Fed's policy shift away from historically high accommodation levels during the pandemic period as "the great recalibration of monetary policy."

"We're trying to communicate to the markets where we see the economy going and why monetary policy needs to shift away from the truly extraordinary level of accommodation required at the pandemic," she said.