Fed's Mester says not yet at point where it can 'hold' rates

By Padraic Halpin

DUBLIN (Reuters) -Federal Reserve Bank of Cleveland President Loretta Mester said on Tuesday that she does not think the U.S. central bank is at a point yet where it can hold interest rates steady for a period of time, given how stubborn inflation is.

Federal Reserve Chair Jerome Powell has signaled the central bank may pause further rate hikes as it assesses the impact of its past tightening, as well as the effect of recent bank sector stress on lending and credit.

However, four U.S. central bankers on Monday signaled they see interest rates staying high and, if anything, going higher, given inflation that may be slow to improve and an economy showing only tentative signs of weakness.

"The approach I'm taking is that I would like the policy rate to get to a point where, when I'm thinking about what would the next policy change be, I want it to be equally a potential increase versus a decrease," Mester told a conference in Dublin.

"When we get the policy to that rate, I think we're going to be holding for a while in order to make sure that the interest rate is coming back down. So I don't put it in terms of a pause, I put it in terms of a hold. Have we gotten to that rate yet? At this point, given the data we've gotten so far, I would say no."

Mester said rate setters know part of their rate increases have not yet impacted the economy and she wanted to see more data, including on the pullback in bank credit, before the Federal Reserve's next meeting in mid June.

Mester, who does not have a vote on this year's rate-setting Federal Open Market Committee, added that economic growth is slowing and that there has been "some slight slowdown in labor market conditions" but that the jobs market remains quite tight.

"I need to see more evidence that inflation is still moving down," she said. "I think that we just have to stick with what we're doing."

(Reporting by Padraic Halpin, additional reporting by Michael S. Derby in New York; Editing by Chizu Nomiyama and Ed Osmond)