The Federal Reserve announced another 25 basis point cut at its December meeting on Wednesday and indicated it expects to cut interest rates only twice in 2025. The decision was split, with Cleveland Federal Reserve President Beth Hammack dissenting, saying she prefers to hold rates steady.
Former Cleveland Federal Reserve president and CEO Loretta Mester joins Julie Hyman on Market Domination to discuss the rate cut and what it signals about the Fed's approach to the rate easing cycle going forward.
When asked about her successor being the lone dissenter of the cut, Mester says, "I'm sure they had a robust discussion at the meeting because there were some indications that inflation has been stalling out, [or] at least been more sticky than they anticipated it being."
She adds, "One way to think about this is [the Fed] had told everyone that they thought 100 basis points of recalibration was probably required, and they fulfilled that. But at the same time, they signaled, 'Look, we're going to be going more gradually.'"
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Mester also appeared on Yahoo Finance last week, where she stated that the Fed's monetary policy needs to be "rethought" due to the "underlying momentum in the economy" in response to November's Consumer Price Index (CPI) data.
Mester believes the Fed to be at an inflection point "where inflation still has some more room to go. We may have to keep policy a bit more restrictive than we anticipated to get it all the way back down to [the Fed's] 2% [target], but we're in a good spot with monetary policy where we can react."
As uncertainty about President-elect Donald Trump's return to the White House looms, Mester says "I think that's the right tact" for the Fed to avoid speculation. She notes, "That doesn't mean that as information comes out, they won't be looking at what they expect or [are] forecasting."
Watch the video above to hear more from the former Cleveland Fed president's reaction to the central bank's latest rate cut.
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
This post was written by Naomi Buchanan.