Loretta Mester served as president of the Cleveland Fed for 10 years before retiring on June 30 after a career in the Federal Reserve System.
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By Christopher Ruger AP Economics Reporter
July 17, 2024, 10:28 AM
• 4 min read
WASHINGTON — Loretta Mester has spent her entire career on the Federal Reserve Board, serving as president of the Cleveland Fed for 10 years until her June 30 retirement.
For much of her time on the Fed's interest-rate setting committee, Mester tended to favor relatively high interest rates to tame inflation, a stance that earned her the label “hawk,” a term used to describe officials who are most concerned about tame inflation. (By contrast, “dovish” policymakers tend to focus on keeping interest rates low to maximize employment.)
But in a recent interview, Mester reiterated her belief that the Fed should cut rates this year if inflation remains subdued, as she and other Fed officials expect.
Mester, 65, who earned her doctorate in economics from Princeton University, joined the bank's Philadelphia office in 1985 and became its director of research in 2000. Mester spoke about the outlook for inflation, how the Fed has changed during her tenure, and why many Americans remain pessimistic about the economy. The interview has been edited for length and clarity.
Q. What do you think about recent signs that inflation is slowing?
A. Inflation appears to be back on a downward trend, which is very good. This is exactly what we want. We want to see inflation come down sustainably to our 2% target.
At the same time, demand is moderating, the labor market remains healthy, but I would need inflation to be a little more favorable before I feel we can begin to cut rates.
I expect the economy to develop in a way that will allow the Fed to start lowering interest rates later this year. I can't tell you when. It depends on how the economy actually develops. But if things develop as expected, I would expect the Fed to start lowering interest rates. But the timing will depend on what data actually comes out.
Q. How has the Fed changed during your tenure?
A. Probably the biggest change was going from Alan Greenspan to Ben Bernanke. Instead of speaking first, Ben let everybody speak first and then summarised. I felt like people were a little more free to actually give their policy views. Janet Yellen and Jerome Powell kept that format.
There's more and more attempts to be more transparent and to really explain the rationale for decisions. In the old days, the Fed didn't even issue statements after meetings. Think about it. How different it is in today's world. Chairman Powell goes to the press and issues a statement after every meeting.
Q. Why do you think consumer sentiment remains gloomy even though the data shows a generally strong economic situation?
A. The lesson learned from this is that high inflation is very harmful. Inflation was highest in necessities. Food prices, all the necessities that people have to buy. If you have low incomes, you spend the majority of your consumption on these necessities. So inflation hit the lowest income people the hardest.
If you actually look at how much wages have increased since the pandemic, the gap between wage and price growth has narrowed, which is good news. If you think about the cost of living, is your current income enough to cover your expenses? Will it make up for the time since the pandemic that you haven't been able to do that? We're not there yet. Even if inflation goes back to 2%, the price level will go up, but so will wages. Are we back to where we were before? Not yet, but we're getting close. So that's a good thing.
Q. Given Donald Trump's past attacks on the Fed, are you concerned about the Fed's independence if elected president?
A. I don't think so in the Congress sense. I think they understand the importance of the Federal Reserve making monetary policy decisions that are not swayed by short-term political considerations. I've been talking to members of Congress about this for many years, and every single one of those I've talked to, from both parties, really understands the importance of it.