Fed's Mester says she has hope that inflation can be brought down without a recession

cnbc.com:

Cleveland Federal Reserve President Loretta Mester said Friday that interest rates likely need to keep moving higher to get inflation back to acceptable levels.

In a CNBC interview, Mester said she sees the central bank's benchmark interest rate having to rise above 5% and stay there for a while. The fed funds rate, which sets the level that banks charge each other for overnight borrowing but spills over into many forms of consumer debt, is currently in a target range of 4.5%-4.75%.

«I see that we're going to have to bring interest rates above 5%,» she told CNBC's Steve Liesman during a "Squawk Box" interview. «We'll figure out how much above. That's going to depend on how the economy evolves over time. But I do think we have to be somewhat above 5% and hold there for a time in order to get inflation on a sustainable downward path to 2%.»

Mester made news recently when she revealed that she was among a small group of Fed officials who, at the Jan. 31-Feb. 1 Federal Open Market Committee, wanted a half percentage point rate hike rather than the quarter-point move the panel approved.

Though she is a nonvoter this year on the rate-setting FOMC, she gets input into decisions. She said she's not sure yet whether she will push for a half-point increase when the committee meets again in March.

«I don't prejudge,» she said. «That's a tactical decision that we make at the meeting.»

Many economists expect the Fed won't be able to achieve its inflation goal without tipping the economy into a recession. GDP grew at a 2.7% in the fourth quarter of 2022 and is tracking at about a 2.5% rate in the first quarter of 2023, according to the Atlanta Fed.

Mester said she thinks that if the economy does contract, it won't be a severe