US GDP growth to be below 2% this year and next: Cleveland Fed chief

Cleveland Fed President Loretta Mester believes the US economy will grow slowly this year and next as the Federal Reserve tightens monetary policy to bring down inflation.
After two quarters of decline in GDP, it expects a resumption of recovery in the 2nd half of this year, according to MarketWatch.

“But for this year overall and next year, I expect growth to be well below 2%,” Mester said.

She acknowledged rising recession risks, “as financial conditions tighten around the world, inflation is very high in many countries, global economic growth is slowing, and a devastating military operation in Ukraine adds significant uncertainty and downside risks to growth prospects, especially in Europe.”

The head of the Cleveland Fed believes that the unemployment rate in the country will rise. “But I’m not going to paint a recession in the US economy,” she added.

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Mester declined to say whether she favors another 0.75 percentage point rate hike at the Fed meeting in two weeks or a 0.5 percentage point hike. According to her, the magnitude of the change will depend on the inflation forecast.

Her “current view” is that it will be necessary to raise the rate to “a little over 4% by the beginning of next year and keep it there,” Mester said. “I don’t expect the Fed to lower its target federal funds rate next year,” she added.

Mester is considered one of the main “hawks” among the representatives of the Fed’s leadership in the fight against high inflation. This year she is a voting member of the FOMC, which determines the key rate range.

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