Federal Reserve Chairman Mester said the benchmark interest rate needs to be raised above 5% this year and maintained at a restrictive level to stabilize inflation. Therefore, it is recommended that investors should pay attention to the actions of the Fed’s policy makers and pay close attention to changes in economic data. In the case of rising interest rates, investors may consider reducing their positions in fixed income assets and increasing their positions in equity assets. In addition, Meister does not expect policy makers to cut interest rates this year, so one may consider choosing short-term holdings in equities and other equity investments in a tightening monetary policy environment. At the same time, there is a need to keep an eye on the credit crunch in the wake of the banking crisis and adjust monetary policy if necessary. It should be noted that any trading decision should be based on the investor’s own risk tolerance and investment objectives.
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Caixin, April 5 (Editor Zhou Ziyi) – Cleveland Fed President Loretta Mester said in a speech Tuesday (April 4) that Federal Reserve policymakers should raise the benchmark interest rate above 5 percent by the end of this year and keep it at a restrictive level for a period of time.
On Tuesday, Meister said at an event in New York that in order to stabilize inflation at 2 percent, monetary policy needs to “move somewhat further into restrictive territory this year, pushing the federal funds rate up above 5 percent” and keeping rates at restrictive levels for a period of time, depending on the speed at which price pressures ease.
In the subsequent question-and-answer session, Meister said she was “very pleased” with the Fed’s decision to raise interest rates by 25 basis points in March, amid a volatile financial environment caused by the recent banking crisis. She said that so far, “the situation seems to have stabilized,” the Fed and other regulators have also taken action to curb the spread of the banking crisis.
At its March policy meeting, the Fed raised interest rates by 0.25 percentage points to a target range of 4.75%-5%. A dot plot released at the same time showed that the median forecast of 18 officials was for the policy rate to reach 5.1 percent by the end of the year, implying another 25 basis points of rate hikes.
No rate cuts
In addition, Meister also expects that policymakers will not cut interest rates this year.
Fed officials are now closely watching economic data to determine how much the recent banking turmoil will tighten credit and even slow economic growth.
Meister said the end of interest rates will depend on the time needed for the economy to cool and price pressures to ease.
Just how much the federal funds rate needs to rise, and how long policy needs to remain restrictive, will depend on the extent to which inflation and inflation expectations are on the downside, which in turn will depend on how much demand is slowing, how much supply challenges are being addressed, and how much price pressures are easing.”
However, Meister expects inflation to show “meaningful” improvement soon, with inflation figures falling to around 3.75 percent this year and reaching the Fed’s 2 percent target in 2025.
The March jobs report scheduled for release this Friday (April 7) will also influence the actions of Fed officials at the May policy meeting.
The banking system is healthy
Meister believes the U.S. banking system is healthy, and she said officials will closely monitor the credit crunch in the wake of the recent banking crisis and adjust monetary policy as necessary.
“Going forward, Fed policymakers will continue to assess the extent and duration of these effects and determine the appropriate monetary policy to adopt from their impact on the outlook for inflation and employment,” she noted.
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