Cleveland Fed President Says Rate Cuts Could Prolong High Inflation

(New York=Yonhap Infomax) Jin Woo Choi – Federal Reserve Bank of Cleveland President Loretta Mester warned on the 20th (local time) that cutting interest rates to support the labor market could risk extending the period of elevated inflation.

Speaking at the 2025 Financial Stability Conference in Ohio, Mester emphasized, “Easing policy to support the labor market could encourage greater risk-taking in financial markets.”

She noted, “Financial conditions are currently very accommodative, reflecting recent stock market gains and looser credit conditions. In such an environment, policy easing could support risky lending.”

Mester expressed concern that “this could further inflate asset prices and delay the detection of vulnerable lending practices in credit markets, with potential spillover effects on the broader economy.”

She added, “Rate cuts are sometimes described as insurance against a more severe labor market slowdown from a risk management perspective. However, it is important to remember that such insurance may come at the cost of increased financial stability risks.”

Mester further explained, “There is already substantial research showing that persistent inflation can increase banking risks and put pressure on household finances.”

jwchoi@yna.co.kr

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