Fed’s Mester backs 75 basis point hike in July if conditions remain the same

Federal Reserve Bank of Cleveland President Loretta Mester said Wednesday that if economic conditions remain the same when the U.S. central bank meets to decide its next monetary policy move in July, she will be advocating for a 75 basis point hike to interest rates.

The Fed’s path of monetary tightening has become a key driver of market activity in recent months as the central bank looks to act aggressively to rein in soaring inflation, while acknowledging the risk that steeper interest rate rises will increase the likelihood of an economic recession.

The Fed opted for a 75 basis point hike to its benchmark rate earlier this month, the biggest increase since 1994, with inflation running at a 40-year high.

Mester — a voting member of the Federal Open Market Committee — said July’s meeting will likely involve a debate among FOMC policymakers over whether to opt for 50 basis points or 75 basis points.

“If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see in order to think that we can go back to a 50 increase.”

Mester said she will be making an assessment of supply and demand conditions over the coming weeks prior to the meeting in order to determine the preferred path of monetary policy tightening.

The “dot plot” of individual FOMC members expectations places the Fed’s benchmark rate at 3.44% by the end of the year, from its current target range of 1.5%-1.75%.

“I think getting interest rates up to that 3-3.5%, it’s really important that we do that, and do it expeditiously and do it consistently as we go forward, so it’s after that point where I think there is more uncertainty about how far we’ll need to go in order to rein in inflation,” Mester told CNBC’s Annette Weisbach.