Cleveland Fed President Mester says Ukraine war accelerates the need for interest rate hikes

cnbc.com:

War in Ukraine only heightens the need for higher interest rates to get inflation under control, Cleveland Fed President Loretta Mester said Thursday.

The attack from Russia has pushed commodity prices higher, particularly for grains and energy, coming at a time when consumer prices are rising at the fastest annual rate in about 40 years.

Mester told CNBC that the situation, while posing broader downside risks to the economic growth picture, is making inflation worse and necessitating monetary policy tightening from the central bank.

«The situation in Ukraine adds uncertainty to the economic outlook,» she told CNBC's Steve Liesman during a live «Squawk on the Street» interview. «The uncertainty about the outlook doesn't change the need to get inflation under control in the U.S. In fact, it actually adds upside risk that high inflation might continue, and that makes it more important to take action.

That action is likely to include a quarter-percentage-point increase in the Fed's benchmark short-term borrowing rate at the Federal Open Market Committee meeting in less than two weeks.

While Mester has been a backer of aggressive Fed tightening, she did not endorse making that first move even stronger, such as a 50 basis point, or half percentage point, increase. She said that decision can be made further in the year after seeing how the initial rate hikes impact inflation.

»We'll have more information in the second half of the year about the effect of the situation in Ukraine for the medium-run outlook in the U.S. It certainly poses some downside risks for growth," she said. «Those assessments might be a consideration in determining the appropriate pace at which to remove accommodation later in the year, but it certainly