Fed’s Mester backs another 75 basis point rate hike in July

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Yahoo Finance Live anchors discuss Cleveland Fed President Loretta Mester’s inflation expectations, which include taking on another 75 basis point rate hike in July.

Video Transcript

- Another 75 basis point rate hike question mark? That's what Cleveland Fed President Loretta Mester is saying should happen at the next Fed meeting in July. Speaking at the European Central bank's annual forum today, you know him and your hood is the ECB Mester. She went on to say that the July meeting will likely see a debate among FOMC policymakers on a 50 or 75 basis point rate hike.

Joining us now to talk more about these comments as well as the upcoming July meeting is the man with the best smile here, well--

BRIAN CHEUNG: Oh, stop it.

- Wow.

- Oh my gosh.

- Don't pump him up anymore.

- OK. So Brian, what are we expecting to hear not just from Jay Powell today but kind of pairing that together with what Mester's already said?

BRIAN CHEUNG: Yeah, Fed Chair Jay Powell speaking at the ECB actually in a panel that just kicked off a few minutes ago. We'll see what he says. He hasn't spoken quite yet but a lot of the kind of basis for what we're expecting to hear from Fed officials is built around some of the commentary we've already gotten. And Cleveland Fed President Loretta Mester already hitting the tape with a public call for another 75 basis point hike in the Fed's next meeting that will be happening in about four weeks.

Now, what's very interesting is that we know that the Fed Chair had teed up when they made the announcement of the 75 basis point hike two weeks ago that the next meeting was going to be a debate between either 50 or 75. So it's very binary right now. No 100 basis point hike on the table for now but we'll see what the Fed officials have to say.

But the debate between 50 and 75 might really depend on how much you see the supply chain issue weighing on the high inflation that we're seeing now. And obviously, PCE, the read that we'll get tomorrow morning will be a big another data point that the Fed will have in its Belt. But Loretta Mester saying, look right now, she wants to look through the supply shocks right now and just try to get inflation expectations down in September remarks that she made.

I want to read to what you said. She said, "it also calls into question the conventional view that monetary policy should always look through supply shocks. In some circumstances, such shocks could threaten the ability of stability of inflation expectations and would require policy action." Now that's a pretty boring quote but I actually think that's pretty noticeable because it's essentially a Fed official saying the supply chain story is not that relevant right now. We need to make sure we let Americans know that we're getting ahead of inflation expectations. That's why we got to get more aggressive.