A Diligent and Judicious Return to Price Stability

Please consider A Diligent and Judicious Return to Price Stability by Cleveland Fed President Loretta Mester 

I thank the Money Marketeers of New York University for inviting me to speak this evening. I look forward to hearing what is on your minds, but first, I would like to present some prepared remarks on the economy and monetary policy.

The Fed is responsible for ensuring price stability. Fed policymakers are committed to bringing inflation back to our 2 percent goal. Given where we are on that journey, I plan to remain diligent in setting monetary policy to return the economy to price stability in a timely way and to be judicious in balancing the risks so as to minimize the pain of the journey.

My expectation is that with tighter financial conditions, demand in product and labor markets will continue to moderate. Output growth will likely be well below trend this year and pick up a bit next year. Employment growth will slow, with the unemployment rate rising to 4-1/2 to 4-3/4 percent by the end of the year. So far, high inflation has not unanchored medium- and longer-term inflation expectations, which remain at levels reasonably consistent with our 2 percent inflation goal. The continued anchoring of inflation expectations is an important factor underpinning my outlook that we will see a meaningful improvement in inflation this year, with inflation moving down to about 3-3/4 percent this year, continuing to improve next year, and reaching our 2 percent goal in 2025. In my modal projection, to put inflation on a sustained downward trajectory to 2 percent and to keep inflation expectations anchored, monetary policy moves somewhat further into restrictive territory this year, with the fed funds rate moving above 5 percent and the real fed funds rate staying in positive territory for some time.