Federal Reserve Bank of Cleveland President Loretta Mester said the central bank should stick with its approach to shrinking its massive balance sheet, notwithstanding ongoing volatility in financial markets .
“I don’t see any need at the moment to adjust that plan. I think there is a lot of benefit to leaving that plan in place,” Mester said Tuesday during an interview with Kathleen Hays on Bloomberg Television. “Markets have understood the plan. They see it. They understand it.”
The Fed since September has been allowing its holdings of Treasuries and mortgage-backed securities to mature at a monthly pace of up to $95 billion.
Fed officials appear poised to deliver their fourth straight 75-basis-point hike when they meet early next month. Median projections released by the US central bank on Sept. 21 revealed that officials see their benchmark rate rising to 4.4% by the end of this year and 4.6% by the end of next year, up from the current target range of 3% to 3.25%.
Mester, who votes in monetary policy decisions this year, has said she sees rates rising slightly higher than the median projection because she expects inflation to be more persistent. The Fed official said earlier Tuesday that she was not seeing needed progress in inflation and US central bankers must weigh the risk of tightening too much against not doing enough.
“At this point the larger risks come from tightening too little and allowing very high inflation to persist and become embedded in the economy,” Mester said during an event with The Economic Club of New York.
