The Federal Reserve's Harker stated that interest rates should remain unchanged for a considerable period of time

Investing.com - The President of the Federal Reserve Bank of Cleveland, Loretta Mester, stated on Friday that she does not see an immediate need to change monetary policy due to inflation remaining too high.

Mester said during a speech at the U.S. Monetary Policy Forum in New York City that the Fed’s current policy stance can effectively balance high inflation with a weak labor market. After lowering interest rates last year, the central bank’s target rate is now at a neutral level, neither stimulating nor restraining economic growth.

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Mester indicated that, in her baseline scenario, policy should remain unchanged for a considerable period until there is evidence that inflation is decreasing and the labor market is further stabilizing. She added that she believes interest rates face risks on both sides, as other scenarios are also easily conceivable.

Last year, the Fed lowered the federal funds target rate range by 75 basis points to between 3.5% and 3.75% to support the weak employment market while maintaining enough restraint to reduce inflation, which has remained well above the Fed’s 2% target.

Mester, who has voting rights on the Federal Open Market Committee this year, expressed skepticism about the Fed’s decision to cut rates last year amid high inflation. Additional challenges to the Fed’s policy outlook come from President Donald Trump’s actions against Iran, which pushed energy prices higher and reignited concerns over persistent inflation.

Mester said that inflationary pressures are widespread and pointed out that tariffs are just one area of concern for businesses. She noted that companies also report rising costs from healthcare and electricity prices.

Most of Mester’s speech focused on the U.S. dollar and its prospects as a global reserve currency. She stated that the dollar’s dominance is due to the strong American institutions and legal system, and currently, there are no real competitors capable of replacing the dollar. Evidence shows that, so far, dollar holdings have not significantly decreased.

Mester mentioned that the rise of dollar-denominated stablecoins could also boost demand for the currency. She added that it is hard to imagine a major change in the dollar’s international role immediately, explaining that the more people use a currency, the stronger the network effects and the greater the benefits.

Mester said she has not heard of any clear signs of moving away from the dollar from contacts and pointed out that the euro is still not ready to replace the dollar. She stated that it would take significant effort to overturn the dollar’s global position.

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