Fed's Mester is speaking and says:

  • If we can get beyond the pandemic, we'll see inflation measures, back down
  • There are many things pushing up inflation now including supply chain issues and wages
  • We've moved from pandemic driven inflation to something broader
  • It is incumbent on the Fed doing what it needs to do to move off extraordinary combination
  • Depending on what happens with the economy some of the rate increases further out may need to be moved forward
  • The case is very compelling that we remove accommodation
  • Fed is also considering what it can do to balance sheet to bring level of assets down
  • If things look like they do today in March she would support lifting rates from zero at that point
  • Because of demographics, labor force participation trend is downward and we are back to that trend
  • Fed will have to take policy actions to make sure inflation expectations remain consistent with 2% goal
  • The economy is basically back to full employment and above inflation target
  • Effects the balance sheet reduction will depend on where the economy is in the moment
  • Fed has to be cautious and humble about putting a number on the effects of balance sheet reductions
  • Fed has to set an appropriate path for the balance sheet and then see what the effects are
  • Reducing the balance sheet and raising interest rates both remove accommodation but not yet be tightening monetary policy
  • Personally believes that reducing the balance sheet at a faster pace because the economy is in a stronger place and balance sheet is at a higher place
  • Fed to reduce balance sheet is fast they can without disrupting the financial markets
  • One strategy Fed could use his selling assets, doesn't want to take anything off the table
  • Even without active selling there is going to be a reduction in balance sheet because of the maturity of holdings
  • She would like to look at larger redemption as balance sheet is reduced
  • The Fed has yet to decide on a plan for balance sheet reduction
  • Still wants to be communicative and transparent, but the pandemic is requiring Fed officials to be more nimble
  • There is no sense that Fed wants to surprise anyone with its policies

Mester has been more hawkish and is certainly looking to get on with taking back accommodation sooner rather than later. She's making her comments in a Wall Street Journal interview.