More Mester: If inflation does not come down from the middle the year Fed will move faster

• There is a strong case to start reducing accommodation and she support a rate increase in March
• If inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term is not coming down by the middle of the year then Fed will need to remove accommodation att a faster pace
• Her view is the Fed can move considerably faster to shrink balance sheet than it has in the past
• The Fed will be careful with balance sheet plan to not disrupt financial markets
• Having inflation under control is going to help the Fed sustain the expansion
• She does not see a compelling case to start with a 50 basis point increase, but adds that the committee will have to talk about it and decide.
• Suspects the Fed will need to get interest rates above neutral, but does not see an immediate need to do that
• Expects the Fed will set the balance sheet on a path to reduce it, and use Fed funds rate as the main policy tool
• Inflation expectations are still anchored in the long run
• On balance sheet sales, MBS sales would need to be carefully done to not disrupt the markets
• Fed is still discussing what balance sheet plan would look like
• Would not necessarily sell mortgage-backed securities from the start: active sales will come later
• It is important that the Fed return to a primary treasury portfolio
• With the economy doing well, it's time to start reducing the balance sheet
• thinks of long-term Fed funds rate is 2.5%

The QE bond and MBS buying was a certainly instrumental in pushing rates down and in a way getting through the Covid crisis. In another way, it inflated assets from stocks to bonds, to crypto, to NFTs, to SPACs, etc. The dance of getting out of the balance sheet, has the Fed officials speaking like it might be that hard to not disrupt the markets. That certainly will be the $24,000 question not only for the US but for other countries who engaged in QE

PS with the 10 yield now trading at the highest level since December 2019, all the bond buying that took place down to 0.33% in the 10 year is underwater. In the two year sector, the yield reached the highest level since February 24, 2020 just before the Covid crisis began..