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"Barring a material change in the economy, I anticipate that it
will be appropriate to move the funds rate up at a faster pace
this time and to begin reducing the size of the balance sheet
soon and more quickly than last time," Mester said during a
virtual event organized by the New York University Stern Center
for Global Economy and Business.
Policymakers are expected to start raising interest rates from
near zero levels when they meet next month and to begin reducing
the Fed's nearly $9 trillion portfolio soon after. Officials are
debating how quickly to raise interest rates to combat the
highest inflation seen in decades.
St. Louis Fed President Jim Bullard is calling on the Fed to
raise rates by a full percentage point by July, while others
favor a smaller increase to start. Mester said she would support
removing accommodation at a faster pace in the second half of
the year if inflation does not abate by mid-year, and at a
slower rate if inflation comes down faster than expected.
The policymaker said she sees inflation remaining above 2% this
year and in 2023, with the risks tilted to the upside.
Mester also said she supports selling some of the Fed's mortgage
holdings at some point to accelerate the move to a portfolio
that invests primarily in Treasury securities. She is among the
officials who view asset sales as a backup plan for the central
bank as it shrinks a balance sheet that doubled in size during
the pandemic.
Fed officials also need to move away from providing explicit
forward guidance as they reduce support, Mester said. "Instead,
we will need to convey the overall trajectory of policy and give
the rationale for our policy decisions," she said.
(Reporting by Jonnelle Marte; Editing by David Gregorio)
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