“The biggest risk hanging over monetary policy is that the Fed will not raise rates sufficiently” to counter US inflation. This is what Cleveland Fed President Loretta Mester said, adding that “the Fed still has to make progress in lowering inflation” and that “monetary policy must enter a restrictive phase”.
“The size of the Fed’s monetary tightening will depend on economic conditions,” Mester said, predicting an unemployment rate to rise (from 3.5% now) to 4.5% by the end of 2023 and then even higher in 2024. .
The Cleveland Fed’s number one said she expects inflation to drop to 3.5% in 2023 and 2%, thus in line with the Fed’s 2% target by 2025.
“A possible shock could slide the United States into recession,” said Loretta Mester, admitting that “the struggle to lower inflation is painful, but it must be there”.
For the next two years, forecasts are for “weak growth” of the US economy.