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Fed’s Loretta Mester Says Rates To Stay Higher Longer

April 3, 2024 (EIRNS)—It turns out that inflation is less defeated than the gurus thought it was, according to the latest data released: official year-on-year U.S. inflation hit 2.5% in February. Therefore, Financial Times reported, “Loretta Mester, president of the Cleveland Federal Reserve and a voting member of the Federal Open Market Committee, revealed in a speech on Tuesday [April 2] that she had raised her estimate of the longer-run federal funds rate from 2.5% to 3%.”

So, it appears the Fed will not be cutting interest rates in May; but Mester “doesn’t rule out” a cut in mid-June, followed by possibly another two quarter-point cuts for the remainder of the year. Opined Mester: “I think three is still reasonable, but it’s a close call.… [But] a projection is not a promise.”

But beware of the effect of Mester’s “higher longer” projection on the “everything bubble.” Another FT article reminds readers of the looming catastrophe in commercial real estate loans, which total some $24 trillion. “Banks will have to cut their exposure to commercial real estate because of a $2 trillion `wall’ of property debt coming due in the next three years, according to a leading U.S. brokerage. `Banks will be under pressure,’ said Barry Gosin, chief executive of Newmark, which handled $50 billion of loan sales for failed Signature Bank.” So Gosin knows whereof he speaks.

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