Fed official rules out May rate cut

Cleveland Federal Reserve President Loretta Mester said Tuesday that she is unlikely to support cutting interest rates at the Fed's May meeting.

Mester, who is currently a voting member of the central bank’s rate-setting panel, said she does not expect to have enough data by the Fed’s next meeting to determine that inflation is headed solidly back down towards its 2-percent target. 

“The monthly inflation readings in January and February came in firmer than the readings over the second half of last year and are a good reminder of what we already knew: that the disinflation process will not be a smooth path back to 2 percent,” Mester said in prepared remarks Tuesday.

While inflation has eased significantly over the past year and a half, January and February’s numbers came in hotter than expected. 

Consumer prices rose by 0.3 percent in January for a 3.1 percent year-over-year increase. In February, prices ticked up 0.4 percent over the previous month and 3.2 percent over the past year.

However, Mester said the latest numbers haven’t changed her overall outlook on inflation, noting that she previously expected the pace of disinflation to slow this year.

“I continue to think that the most likely scenario is that inflation will continue on its downward trajectory to 2 percent over time,” Mester said. “But I need to see more data to raise my confidence.” 

“Some further monthly readings will give us a better sense of whether the disinflation process is stalling out or whether the start-of-the-year readings reflect a temporary detour on the downward path back to price stability,” she continued. 

While Mester doesn’t believe she’ll have enough information by the Fed’s next meeting to determine where inflation is headed, she said she anticipates the central bank will begin cutting rates “later this year."

Traders largely aren’t expecting the Fed to cut rates from their current range of 5.25 to 5.5 percent in May. However, they have priced in a nearly 60 percent chance of a rate cut in June, according to the CME FedWatch Tool.