Cleveland Fed President: We’ve Had ‘Beginning of a Transition’ to ‘Much More Persistent’ Services Inflation

On Thursday’s broadcast of CNBC’s “Squawk Box,” President and Chief Executive Officer of the Federal Reserve Bank of Cleveland Loretta Mester said there has been the start of a “transition from purchasing goods and the goods inflation to services inflation. And services inflation is much more persistent.”

Mester stated, “[T]he Summary of Economic Projections in September, that was the median path across participants. If you look at the range of values for the Fed Funds Rate, that’s about in the middle of the range, right? So, over the…end of this year and next year, rates are in the 4 to 4.5 to 5% range or 4 to 5% range. So, that’s basically the median path. I probably am a little bit above the median path because I see more persistence in the inflation process than that median path in the SEP. But a four handle, above four, is where I think we need to get to because we have to have real interest rates, and real interest rates judged by the expectation over the next year of inflation have to be in positive territory and held there for a time.”

She added that part of the issue “is that we’ve had this beginning of a transition from purchasing goods and the goods inflation to services inflation. And services inflation is much more persistent. So again, my expectation is then, inflation will come down…I have inflation coming down, but we have to bring interest rates up to get that downward shift in the inflation path.”

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