Hamak says the Federal Reserve still needs further tightening to lower inflation.

The President of the Cleveland Federal Reserve, Loretta Mester, stated that the Federal Reserve needs to bring monetary policy to a restrictive level in order to push inflation down to the 2% target. She noted that the current policy stance means the time for inflation to fall may be longer than is acceptable, therefore “more tightening is needed.” Mester indicated that further interest rate hikes may still be necessary in the future, but the timing is yet to be determined. She prefers to take “smaller, more frequent” adjustments to help businesses and households plan ahead. Mester mentioned that input costs for businesses are rising, and more companies are starting to pass these costs on to consumers. If prices are no longer constrained by demand, inflation may further rise or remain at high levels. She pointed out that the greatest inflation risk is the formation of an “inflation mindset” among individuals and businesses, gradually accepting higher levels of inflation, which would make it harder for the Federal Reserve to bring inflation back to target—something for which there are already some signs. Speaking about the rise in US Treasury yields, Mester stated it is mainly being driven by expectations of economic growth, market repricing of Federal Reserve policy, fiscal pressures, and a large amount of bond issuance. She said the current investment boom in data centers is driving growth, but the current financial environment still needs to be tightened further to help reduce inflation. Mester also emphasized that the Federal Reserve’s independence “has always been critically important.”