Cleveland Fed President Calls for Rate Hikes to Combat Inflation

Cleveland Fed President Loretta Mester stated that in response to demand pressures from investments in artificial intelligence, interest rates need to be raised to combat inflation. She pointed out that policy needs to shift to a restrictive stance to help bring inflation back to the 2% target. Mester expressed concern that without action, inflationary thinking could take root. She mentioned that the demand pressures from data center construction give the Fed the capacity to respond. She observed that inflation remains stubborn and its duration exceeds expectations, with core inflation, excluding food and energy prices, rising more than expected in October, indicating that progress on inflation has "indeed stalled." Mester emphasized that the latest data shows inflation is moving in the wrong direction, far from the 2% target. Last month, the Fed decided to keep interest rates unchanged in the range of 3.75%-4%, with Mester being one of the dissenting officials favoring a 25 basis point increase.

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