Loretta Mester, Speech: Views on the Economy and Monetary Policy

“As I mentioned earlier, at last week’s meeting we raised the fed funds rate target range by one quarter of a percentage point and said that we anticipate that ongoing increases will be appropriate. We also said that at an upcoming meeting we would begin to reduce the amount of assets that we hold on our balance sheet. We will do that in a predictable manner primarily by adjusting the reinvestment amounts of the principal payments we receive on our assets. Other details of the plan for reductions are being finalized. The plan will draw on our experience during 2017 to 2019 when we reduced our balance-sheet assets, which had grown in the wake of the Great Recession. But the balance sheet is much larger, in terms of both the dollar value of assets and assets relative to GDP, and inflation is much higher than it was then. So it is appropriate to start reducing the balance sheet sooner and proceed at a faster pace this time. One benefit of this plan is that we will be removing the downward pressure our holdings put on yields at the long end of the yield curve while we are raising rates at the short end, thereby reducing monetary policy’s distortionary effects on the shape of the yield curve as normalization proceeds.”

“Based on my current outlook and my assessment of the risks to the outlook, I believe it will be appropriate this year to move the target range of the fed funds rate up to its longer-run level, which I estimate to be about 2.5 percent, and to follow with further rate increases next year. My path is somewhat steeper than the median path in the March Summary of Economic Projections of FOMC participants, which also has the funds rate moving above its longer-run level next year.”