US FOMC Member Mester Speaks

Mester: Rate Cut Depends on Progress with Inflation Mester: Lack of Progress on Inflation Was Not Welcome Mester: No Risk in Spending More Time Gathering Data on Inflation Because Economy is Strong Mester: MonPol’s Moderating Demand, but Not as Fast as Expected Mester: Still Think Inflation Will Come Down Mester: but Inflation Won’t Come Down Quickly Mester: if There’s Unforseen Deterioriation on Realside of Economy, Can Cut Rates Mester: Can Hold Rates, or Even Raise Them, if Inflation, Against Expectations Stalls Out or Reverses Fed’s Mester: Neutral Rate May Be Higher Than Previously Expected - BBG TV - Says She Raised Her Estimate On Neutral Rate In March - Previously Saw 3 Cuts In 2024, No Longer Believes 3 Cuts Is Appropriate

FED'S MESTER: MONETARY POLICY IS RESTRICTIVE. Mester: April CPI Report Was Good News, but Too Soon to Tell What Path Inflation’s on Mester: Inflation Progress Stalled in First Three Months FED'S MESTER: RISKS THAT WE'RE TOO RESTRICTIVE HAVE GONE DOWN. Mester: Inflation Risks Are Tilted to Upside Mester: I Don’t Think About Potential Rate Cut in Terms of When FED'S MESTER: THERE'S NO RISK IN SPENDING MORE TIME GATHERING DATA ON INFLATION BECAUSE THE ECONOMY IS STRONG.

Fed’s Mester: It Will Take Longer to Gain Confidence Inflation’s Moving Toward 2% Fed’s Mester: Current Restrictive Policy Will Help Lower Inflation Fed’s Mester: Welcomes CPI Data Sign of Cooling Inflation Fed’s Mester: Expects Gradual Progress on Lowering Inflation FED’S MESTER: RISKS TO THE INFLATION SIDE OF FED MANDATE HAVE INCREASED. <=USD>:*FED'S MESTER: PRUDENT TO HOLD RATES 'FOR LONGER' TO ASSESS DATA *MESTER: INFLATION PROGRESS WILL DEPEND MORE ON EASING DEMAND *MESTER: DATA SUGGEST RISKS TO FED'S INFLATION GOAL HAVE RISEN *MESTER: READINGS ON SHORT-TERM INF. EXPECTATIONS HAVE RISEN

FED'S MESTER: ECONOMY AND MONETARY POLICY IS "IN A GOOD PLACE". Mester: Do Anticipate We’ll Be in a Position to Lower Fed Funds Rate Later This Year Mester: Doesn’t Think Disinflation Pace This Year Will Match Last Year FED'S MESTER: I NEED MORE EVIDENCE INFLATION IS MOVING DOWN. FED'S MESTER: MY LONG-TERM NEUTRAL ESTIMATE WAS RAISED TO 3% FROM 2.5% IN LAST MONTH'S SEPS FED'S MESTER: WAGE-INFLATION GAP HAS NARROWED BUT STILL PERSISTS.

It is a real pleasure to welcome you to the Federal Reserve Bank of Cleveland. I thank the National Association for Business Economics, its Cleveland Chapter, Team NEO, David Altig, and Bill Koehler for the opportunity to speak with you about the economy. Dave and I go back a long way – perhaps too long for me to admit to. We worked together when we were both research directors, Dave at the Atlanta Fed and me at the Philadelphia Fed. Dave is a first-rate economist, so I know he will keep me on my toes as he moderates this session. Before we get into today’s question and answer portion, I thought it would be helpful to frame the discussion by offering a few brief remarks about the economy and monetary policy. I will start by reminding everyone that what I say today will be my views and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee. Economic Developments Substantial progress has been made on the inflation front since inflation peaked in 2022, in the range of 7 to 9 percent, depending on the measure. But inflation is still above our 2 percent objective. PCE inflation is now running about 2-1/2 percent, whether it is measured year-over-year or over the past six months, annualized. And core PCE inflation is running about 2-3/4 percent, measured year-over-year, and near 3 percent, annualized, over the past six months. The monthly inflation readings in January and February came in firmer than the readings over the second half of last year and are a good reminder of what we already knew: that the disinflation process will not be a smooth path back to 2 percent. In my view, the inflation picture has not changed very much s Fed’s Mester: Still Expects Fed Can Cut Rates Later This Year Fed’s Mester: Doesn’t See Case to Cut Rates at Next Fed Meeting Fed’s Mester: Fed Policy in ‘Good Place’ to Navigate Risks to Economy Fed’s Mester: Bigger Risk to Policy is Fed Cuts Rates Too Soon Fed’s Mester: Revised Forecast For Longer-Run Fed Funds Rate Up To 3% - Sees Labour Market In Better Balance, Expects Higher Unemployment Rate - Risks To Economic Outlook Have Become More Balanced - Does Not Expect Smooth Path Back To 2%