Fed's Mester eyes potential rate hike, underscores labor market resilience © Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect

In an interview with CNN International on Friday, Loretta Mester, President of the Federal Reserve Bank of Cleveland, affirmed her confidence in the resilience of the labor market and highlighted that future interest rate decisions will be data-driven. She acknowledged the current high inflation rates but noted signs of a slowdown in wage growth and a cooling labor market as indicators of easing inflation.

Mester discussed the possibility of maintaining the current high benchmark rate, hinting at a potential rate hike decision to be made at the Fed’s November meeting. The benchmark rate last month was at a 22-year peak of 5.25% to 5.5%, with most policymakers anticipating one more increase this year.

The US labor market saw a surge in hiring in September, with an addition of 336,000 jobs, significantly outperforming economists’ predictions. However, average hourly earnings rose by just 0.2% last month, resulting in a 4.2% annual increase – the smallest since mid-2021. Earnings for nonsupervisory employees registered the smallest consecutive monthly increases since 2020.

Mester expressed hope for the Federal Reserve to achieve its 2% inflation target by the end of 2025. However, she clarified that she does not have voting rights in policy decisions this year. She also mentioned that officials are predicting fewer rate cuts in 2024 than previously expected. If economic conditions mirror those observed at the September gathering, Mester voiced her support for another interest-rate increase at the next meeting.

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