with inflation high, better to act “aggressively” By Reuters

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In prepared remarks for delivery at the Massachusetts Institute of Technology, Mester argued that “where there is uncertainty, it can be preferable for policymakers to act more proactively since aggressive and pre-emptive action can avoid the worst-case consequences from really occurring.”

Mester stated that she would be “extremely careful” when evaluating inflation and that she would require many months of declining month-to-month readings before she would be confident that inflation had peaked. In a similar vein, she warned that she will “watch against being complacent” about long-term inflation expectations, which have fallen slightly in recent months but may not be as well-anchored as envisaged and may increase again.

Policymakers should err on the side of adopting policy that is too tight rather than too loose, she argued, because of the uncertainties around inflation forecasts.

“Research suggests that erroneously thinking that longer-term inflation expectations are well anchored at the level associated with price stability when, in fact, they are is a more expensive error for the economy than assuming that they are not well-anchored when, in fact, they are,” Mester said.

The Federal Reserve raised its policy rate by 75 basis points for a third time in as many meetings, bringing it to a range of 3%-3.25% last week.

As the U.S. central bank aims to get borrowing costs high enough to bite into growth and bring down inflation running at three times its target, even at the cost of a rise in unemployment, policymakers signalled another similar sized hike is likely at their next meeting in November, with more increases on tap in subsequent months.

Mester has stated, “Further hikes in our policy rate will be required.” “A tight stance of monetary policy, with real interest rates going into and maintaining in positive territory, will be necessary to place inflation on a prolonged downward track to 2%.”