Cleveland Fed May Back 75 Basis Point Interest Rate Hike in July
Written by
Dawn Allcot
Edited by
Nicholas Morine
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
As the Federal Open Market Committee (FOMC) prepares for its next meeting, Loretta Mester — president of the Federal Reserve Bank of Cleveland — said that a 75 basis point interest rate hike could happen in July if economic conditions remain the same.
“If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see in order to think that we can go back to a 50 increase,” Mester told CNBC’s Annette Weisbach.
Mester is a voting member of the FOMC and noted that FOMC policymakers will likely debate between a 50 basis point hike or a 75 basis point hike in July. FOMC members are aiming for a benchmark rate of 3.4% by the end of the year, up substantially from prior expectations of 1.5% to 1.75%.
“We’re on a path now to bring our interest rates up to a more normal level and then probably a little bit higher into restrictive territory, so that we can get those inflation rates down so that we can sustain a good economy going forward,” Mester told CNBC.
She added that, right now, the No. 1 goal is to get inflation rates under control, as that will help improve consumer sentiment about the economy.
However, the Fed’s rapid tightening could lead to a recession, Mester admitted. Numbers released by the Bureau of Economic Analysis (BEA) showed that the U.S. GDP decreased at an annual rate of 1.6% in the first quarter of 2022. This is the third estimate released this year, and was based on a downward revision to personal consumption expenditures. However, that decrease was partially offset by an upward revision to private inventory investment, according to a press release issued June 29 by the BEA.
However, economists are expecting a return to growth in the third quarter, Forbes reported. This would avoid a recession, as defined by two quarters of negative GDP reports.
But in a research note from S&P Global Ratings, reported by Forbes, experts say the Fed’s aggressive policy to stem inflation could risk a recession. The S&P experts put the odds at 40%, up from Morgan’s Stanley’s prediction last week of a 35% chance of recession.
More From GOBankingRates
