Federal Reserve Bank of Cleveland President Loretta Mester on Monday called for additional central bank rate rises and added the U.S. central bank can likely act to start shrinking the size of its massive holdings of cash and bonds later this year.

“We have met the maximum employment part of our mandate and inflation is nearing our 2% goal” and risks to the economy are “roughly balanced,” Mester said. “If economic conditions evolve as anticipated, I believe further removal of accommodation via increases in the federal-funds rate will be needed,” she told the Chicago Council on Global Affairs in the text of a speech prepared for that event. 

She also answered question during the Q&A session:

• Housing constraints on labor mobility have abated
• Economy ready for us to take back some accommodation
• U-3 is a pretty good indication overall
• We’re not quite there yet on the price stability

Mester’s comments on the outlook for the economy and central bank were her first since last week’s gathering of the interest-rate setting Federal Open Market Committee, which left the Fed’s short-term rate target unchanged at a range between 0.75% and 1%. Officials are widely expected to raise borrowing costs again in June and one more time after that as they push short-term interest rates back to a level they consider more neutral in regards to their impact on growth.

That said, the official noted the Fed will be responsive to incoming data, saying “there are risks around the economic outlook, and because of that, policy is not preset.”  It’s also worth remembering that Mester is one of the most hawkish members of the FOMC. That means that while she could expect two rate hikes, the consensus within the policy-setting Committee could lean towards a single additional hike this year. 

 The market is 100% sure that the FED will raise rates in June. Having that said, a more hawkish rhetorics from the central bankers shouldn’t be taken as a surprise. source: Bloomberg