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Transcript: Cleveland Fed chief Loretta Mester on "Face the Nation," April 10, 2022

Cleveland Fed chief expects inflation above 2% into 2023
Cleveland Fed chief expects inflation to remain above 2% into 2023 07:08

The following is a transcript of an interview with Loretta Mester, president and CEO of the Federal Reserve Bank of Cleveland, that aired Sunday, April 10, 2022, on "Face the Nation."

MARGARET BRENNAN: A new CBS poll shows a bit of a difference in how Americans are experiencing the economy. Although more than half of Americans say the local job market is good. Almost two-thirds say the national economy is bad as inflation and gas prices are seen as the biggest drags on the economy. We want to welcome to the program 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, it is, of course, the Federal Reserve's job to try to get this inflation under control. You're one of the few people who actually gets a vote in setting those interest rates. To be frank, it does seem the Fed was behind the curve on inflation. How do you make up for lost time and get it under control now?

MESTER: Yeah. So, you know, we are very committed to maintaining our and achieving our dual mandate goals of maximum employment and price stability. And we are taking actions, we have the process underway to remove accommodation and remove it. That emergency accommodation that was so needed at the start of the pandemic and throughout now we're in the process of removing it so that we do get inflation under control while at the same time maintaining a strong economy in the expansion and, you know, good labor market conditions. So that process has started. We raised the interest rate last-- last meeting and we said ongoing interest rate increases are on the table and in the cards. And we've also put out some information about how we are planning to reduce our balance sheet assets that we also bought in great quantities to support the economy during the pandemic. So that process is underway and that will help to reduce excess demand, which is outpacing constrained supply and bring price pressures down.

MARGARET BRENNAN: Where do you see inflation by the end of the year?

MESTER: Yeah. So, I think that it will take some time to get inflation down because as you know, there's other things going on in the economy that are adding to price pressures, including the commodity price increases and energy price increases that are happening as well. So, I think inflation will remain above 2% this year and even next year, but the trajectory will be that it will be moving down.

MARGARET BRENNAN: For people on an everyday basis how they experience the economy. Look at numbers like Moody's put out where they said the average person will spend 1,300 dollars more on gas this year if prices stay where they are. You've seen lawmakers and governors talk about things like holidays for gas taxes or cash relief. I know it's fiscal policy, but when you hear things like that, are you afraid that this will add to inflation?

MESTER: So, I do think we have to recognize that there are factors that are beyond monetary policy affecting the inflation numbers. But we have to do what we can do with our policy tools as monetary policymakers to make sure that those inflation and higher prices don't become embedded in the economy. And that's what we're going to be doing with our monetary policy tools. It's no doubt that it's very painful to have these high prices. I mean, it's even worse if you look at low--  low-income consumers because they spend a greater portion of their consumption basket on the essentials housing, you know, energy, food and all those prices are going up at a higher inflation rate than just the average inflation rate. So, this is a serious problem and it's a real painful problem for many in the country. Wages are going up, so that's a good thing. But for many families, they're not going up at the pace that inflation is going up. So, it's very important that we get inflation under control. And that's the biggest challenge right now for the US economy.

MARGARET BRENNAN: The White House argues the true read of the economy is the strong jobs market. Do you believe employment is so strong, too strong to actually generate a recession?

MESTER: So, I think and I'm optimistic that we'll be able to remove monetary policy accommodation and maintain good labor market conditions and the expansion. And I believe that for a couple of reasons. One, underlying demand in the economy, if you look at consumption growth and you look at business investment is very strong. It's not going to be as strong this year as it was last year. But last year, the economy grew at five and a half percent, which is well above a 2% trend. But the other reason is because we are at emergency levels of accommodation. It's very accommodative. So, as we remove that monetary accommodation, right, we're not saying in that accommodation or monetary policy will be tight, we're removing accommodation. And so right, 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 this. It'll be challenging, 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 an increased risk of recession?

MESTER: No. I think that certainly if you look at the risk, given what's happening in the world and the economy, there is an increased risk. But I'm-- I remain optimistic. And certainly my modal forecast of what's going to happen this year is that the expansion will continue.

MARGARET BRENNAN: There is so much going on in the world that can complicate the recovery of the economy, whether it's COVID, whether it's the war in Ukraine. I want to ask you about what we are seeing happen right now in Shanghai, China. 25 million people under lockdown. This is a financial hub for-- for this country. Manufacturing hubs in that country also experiencing this. When you see these zero-Covid policies in China, do you look at that and you say that means prices in America will just stay where they are or be pushed higher when there's a COVID lockdown.

MESTER: So, a couple of things is certainly the lockdown in China is going to exacerbate the problems that we have in supply chains. So that is putting upward pressure on prices and certainly all the businesses that we talk to in my fourth district and elsewhere through the country are saying that, you know, we've pushed out when we think the supply chain issues are going to be resolved, right? So not this year, now it's next year. So that certainly adds upward pressure and that's something we have to be– consider when we're looking at sort of developments on the ground. But I do think that eventually some of those supply chain problems are going to come back down and we've seen that over time, right. First, it's in one sector we have supply chain, then that's resolved. Businesses have been incredibly creative and resilient in terms of rejiggering their supply chains. It's just it's a rolling problem. And I think we have to just be aware that that will add upward pressure and keep prices higher for longer.

MARGARET BRENNAN: All right, Loretta Mester, thank you for your insights today. We'll be back in a moment.

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