(Reuters) – Inflation could ease later this year as demand cools and some of the constraints on supply are resolved, Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday.
But it’s still not clear how long it could take for those pricing pressures to ease, and the Fed will need to help reduce demand by removing some of the support it is providing to the U.S. economy, she said.
“My expectation is that inflation will moderate but remain above 2% this year and next,” Mester said in remarks prepared for a virtual event organized by the European Economics and Financial Centre. “But this forecast is conditional on the FOMC taking appropriate action.”
Mester said that with the labor market tight and inflation running well above the central bank’s target, it is time for the Fed to begin removing accommodation. That includes raising interest rates starting in March and moving quickly to shrink the Fed’s nearly $9 trillion portfolio, which doubled in size during the pandemic, she said.
The Fed official said she would support selling mortgage securities later to help the central bank accomplish its goal of having a balance sheet that invests primarily in Treasury securities.
(Reporting by Jonnelle Marte; Editing by Andrea Ricci)
