The following is a transcript of an interview with Loretta Mester, President and CEO of the Federal Reserve Bank of Cleveland. which aired on Sunday, April 10, 2022 on “Face the Nation.”
MARGARET BRENNAN: A new CBS poll shows a little bit of a difference in the way Americans are experiencing the economy. Although more than half of Americans say the local job market is good. Nearly two-thirds say the national economy is bad, as inflation and gas prices are considered to be the biggest frictions of the economy. We would like to welcome the program to the President of the Federal Reserve Bank of Cleveland, Loretta Mester. Good morning to you.
LORETTA MESTER: Good morning. Thanks for having me.
MARGARET BRENNAN: Well, of course, the job of the Federal Reserve is to try to control this inflation. You are one of the few people who actually get a vote to set these interest rates. To be honest, it looks like the Fed was behind the inflation curve. How to make up for lost time and control it now?
MESTER: Yes. So, you know, we are very committed to maintaining and achieving our dual-mandate goals of maximum employment and price stability. And we are taking action, we have the process underway to remove the accommodation and remove it. That emergency accommodation that was so necessary at the beginning of the pandemic and we are now in the process of eliminating it in order to control inflation and at the same time maintain a strong economy in expansion and, already you know, good labor market conditions. So this process has begun. We raised the interest rate at the last meeting, and we said that the continuous increases in interest rates are on the table and in the charts. And we’ve also posted information about how we plan to reduce our assets on the balance sheet that we also bought in large quantities to support the economy during the pandemic. Therefore, this process is underway and this will help reduce excess demand, which exceeds the limited supply and reduce price pressures.
MARGARET BRENNAN: Where do you see inflation at the end of the year?
MESTER: Yes. So I think it will take some time to reduce inflation because, as you know, there are other things going on in the economy that are compounded by price pressures, such as rising commodity prices and energy price increases that are also occurring. So I think inflation will stay above 2% this year and even next year, but the trajectory will be that it will go down.
MARGARET BRENNAN: For people every day how the economy lives. Look at numbers like Moody’s that said the average person will spend $ 1,300 more on gas this year if prices stay where they are. You’ve seen lawmakers and governors talk about things like gas tax holidays or cash relief. I know it’s fiscal policy, but when you hear things like this, are you afraid this will increase inflation?
MESTER: So I think we need to recognize that there are factors that go beyond monetary policy that affect inflation figures. But we need to do what we can with our political tools as monetary policy makers to ensure that inflation and higher prices do not enter the economy. And this is what we will do with our monetary policy tools. There is no doubt that it is very painful to have such high prices. I mean, it’s even worse if we look at low-income consumers because they spend a larger portion of their consumption basket on basic housing, you know, energy, food, and all those prices are going up. a higher rate of inflation. that only the average inflation rate. So this is a serious problem and it is a real painful problem for many in the country. Wages are going up, so that’s a good thing. But for many families, they are not rising at the rate of rising inflation. Therefore, it is very important that we control inflation. And this is the biggest challenge right now for the US economy.
MARGARET BRENNAN: The White House argues that the real reading of the economy is the strong labor market. Do you think employment is so strong, too strong to generate a recession?
MESTER: Therefore, I believe and am optimistic that we will be able to eliminate the accommodation of monetary policy and maintain good labor market conditions and expansion. And I think so for a couple of reasons. One, the underlying demand in the economy, if we look at consumer growth and business investment is very strong. This year will not be as strong as last year. But last year, the economy grew by five and a half percent, which is well above a 2% trend. But the other reason is because we are in emergency accommodation levels. It is very accommodating. Therefore, when we remove this monetary accommodation, we are not saying that the accommodation or monetary policy will be restrictive, we are eliminating the accommodation. Well, I think we can reduce that excess demand relative to supply without pushing the economy into a recession. So I’m pretty optimistic we can do that. It will be a challenge, but I think we can do it.
MARGARET BRENNAN: So you think Goldman Sachs and Bank of America and Deutsche Bank are wrong when they talk about a higher risk of recession?
MESTER: No. I think that certainly if we look at risk, given what is happening in the world and the economy, there is a greater risk. But I am … I remain optimistic. And without a doubt, my modal prediction of what will happen this year is that the expansion will continue.
MARGARET BRENNAN: There are so many things in the world that can complicate the recovery of the economy, whether it’s COVID or the war in Ukraine. I want to ask you about what we are seeing happening right now in Shanghai, China. 25 million people in confinement. This is a financial center for … for this country. Manufacturing centers in this country are suffering as well. When you look at these zero Covid policies in China, look at it and say that this means that prices in the United States will only stay where they are or increase when there is a blockage of COVID.
MESTER: So a couple of things are certainly that the blockade in China will aggravate the problems we have in the supply chains. So this is putting upward pressure on prices, and certainly all the companies we talk to in my fourth district and elsewhere in the country say that, you know, we’ve turned it down when we think the issues will be resolved. of the supply chain. , right? So not this year, now is the year. So it certainly adds upward pressure and that’s something we have to keep in mind when we look at some kind of developments on the ground. But I think eventually some of these supply chain issues will go down again and we’ve seen that over time, right. First, it is in a sector that we have the supply chain, and then this is resolved. Companies have been incredibly creative and resilient when it comes to restructuring their supply chains. It’s just that it’s a constant problem. And I think we just need to be aware that this will add upward pressure and keep prices higher for longer.
MARGARET BRENNAN: All right, Loretta Mester, thank you for your ideas today. We’ll be back in a moment.
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