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Fed’s Mester advocates bringing forward rate hikes and sees an advance to 2.5% in 2022

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By Ann Sapphire

March 22 (Reuters) – Cleveland Fed President Loretta Mester said on Tuesday she would like to raise interest rates to around 2.5% by the end of the year, with higher hikes in the first half and further tightening next year to reduce high inflation and prevent it from consolidating.

“I find it attractive to bring forward some of the necessary hikes, because it puts monetary policy in one more position to adjust if the economy evolves differently than expected,” said Mester at John Carroll University.

“If mid-year inflation doesn’t start to moderate, we will accelerate our rate hikes. However, if inflation is coming down faster than expected, we will see the pace of rate hikes slow in the second half of the year compared to the first,” he stressed.

Last week, the Federal Reserve raised rates by a quarter of a percentage point, to a target range of 0.25% to 0.5%, a move Mester said he strongly supported.

His comments added to a growing chorus supporting a faster rate of hikes at upcoming Fed meetings.

Fed Chairman Jerome Powell said on Monday that the central bank should raise rates “rapidly” towards the neutral level and, if necessary, above it.

The Russian invasion of Ukraine is adding to upward pressure on inflation, Mester said, which is already at a 40-year high and triple the Fed’s 2% target.

“With inflation already at very high levels and demand outstripping supply, it raises the risks too high that high inflation will take root in the economy and persist,” he said.

(Reporting by Ann Saphir; Editing in Spanish by Javier Leira)

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