Transcript: WSJ Interview With Cleveland Fed President Loretta Mester

LORETTA MESTER: I think we are being data dependent. I certainly use the data to help inform my outlook. So there’s a link between the data and—when you’re thinking about monetary policy, of course, you’re looking out because there’s lag in the effects of monetary policy on inflation and maximum employment and progress toward those. So you need to be forward looking in terms of what is the data telling you about the outlook and what is the data informing you about potential risks to the outlook.

So that’s the context around which I am data dependent. I think sometimes maybe the words themselves can be misinterpreted as almost suggesting that a data point comes in and then we react to that data point. But when I think about data dependence, it’s the group of data, and then the second sentence is, and how it informs your outlook and the risks around the outlook.

So, for example, we’re going to be putting out new projections, the Summary of Economic Projections. Any changes in those will be reflective of what the incoming data since the last SEP has done to your outlook. And then, based on the outlook and given our goals, you might have to change your policy path to get there. And so that’s how I view it.

And so that’s what data dependence means, and I think we are being data dependent. So when I talked about, look, my current read is this, I also recognized that if we get data that come in and aren’t consistent with my outlook then I might have to change my views. If I get data that roughly is consistent—maybe a little bit up, little bit down of what I expected, but if the data themselves don’t have a material change on the outlook—then the policy path may not have to change. So, again, it’s this sort of filtering exercise of data come in and what is it telling you about the outlook.

And so in choosing sort of a policy path—and we do when we write down our SEPs—that’s how I approach it. And then there’s a number of tools that help you do that, of course. There’s models. There are the simple policy rules that we put out on our webpage, and those are informative but not definitive, right? I mean, if you look at those, you can see a lot of variations depending on what rule and what forecast you’re basing the rule on.

So, again, all of that is information that helps you determine where you think policy needs to go. And then, if data and information—and anecdotal reports, of course, are important in this kind of environment where it’s really in a lot of ways unprecedented—that also helps you evaluate where you—where you believe policy will need to get to in terms of the path in order to achieve our goals.

MR. TIMIRAOS: So when you said that you think rates probably need to get to—I think you said somewhat above 4%, how has—how has your view on the so-called terminal rate changed? Has it changed over the last three, four, six months? And to the extent that it’s changed, what has contributed to that change?

MS. MESTER: Yes. So that is really a view about where—based upon the fact that inflation has been persistently high, right? My view on policy is probably a little bit not necessarily the terminal rate being—because my SEP was around that—but it has brought it forward to thinking that we’re going to need to move a bit faster than I thought to get to that rate, given the persistence that we have in inflation. So it’s more of, perhaps, a timing issue and the fact that I think we’re going to have to be more persistent in keeping rates at that level. So right now, I don’t foresee us cutting rates next year, you know. As I said, I think going a little bit above 4% by early next year and then holding it there is what my policy path is, based on the current information I have. So, again, I would say it’s more about timing.

And coming into the last meeting, right when we were—where the debate was 50 [basis points] versus 75, I think that’s reflective of the fact that where you’re going to be in any particular meeting is really informed by, for my case, is what’s happening with the inflation numbers. And that’s because inflation is just so far above our long-term goal of 2%. That’s prominent in my mind. We’ve got to get that back down. So that’s guiding my views on where policy has to be.

MR. TIMIRAOS: I take your point about data dependence versus data-point dependence. I think sometimes people can focus a lot on one report, and that’s probably going to happen next week with the consumer-price index. So would a softer core inflation reading next week or a firmer one change your view enough about what you should do at any particular meeting? And here I’m talking about the September meeting. Or is it more likely to change your view about—to the extent that it changes your view, that it’s really about something beyond the September meeting?

MS. MESTER: Yes. As I’ve said, I really need to see compelling evidence that inflation’s coming back down. So I don’t expect one report or even if you think of the previous report as being that compelling evidence that would necessarily change my view of policy. But I do think it’s really important to look under the hood of that report and see what’s happening.

My own view is that, given past experience, the services inflation is going to be more persistent than some of the goods inflation has been, right? That’s been coming down partly because of what’s happening in oil prices and energy prices and some of the commodity side. I’m not even convinced that’s going to stay down because I do think that the Ukraine situation and European energy situation is going to have a large influence on oil prices later in the year. So I still think that we shouldn’t read that that’s necessarily going to stay where it is.

But set that aside. On the services side, that tends to be persistent. And rents have remained elevated despite some slowing in activity in the housing markets, partly because there’s an imbalance between supply and demand there. That usually creeps through to inflation with a pretty long lag. So, again, I think there’s good reason to believe that we may see services inflation stay up persistently. So I’m going to need to see more data to be able to say, “Hey, has inflation peaked?” And then we really want to see it on a downward path that’s sustainable toward 2%.

I would welcome a good report on inflation, but I don’t think that one report is going to change my view that we’re just really at a high inflation level and the risks are that it stays high. And if you’re doing risk management, if you do the risk-management approach, you should be really leaning against the high inflation—one, because high inflation itself is above our goal, way above our goal; and two, the longer it stays above, the more probability and chance there are that expectations are affected and move up, and longer-term expectations move up. And when you have that combination of high inflation and expectations being high, then it’s going to be much more difficult and much more costly to bring that inflation down.

So everything from the literature and, actually, experience suggests that you should be assuming that inflation—when you’re thinking about “what’s the appropriate policy path?”—is going to be persistent and lean in definitively against that. And so that’s also something that I take very seriously when I’m thinking about what the policy path is.

MR. TIMIRAOS: I know people don’t want to get pinned down on this business of telling reporters what they’re going to do at the next meeting, but I’ll just ask. Everything you’re saying sounds consistent with doing another 75-basis-point increase. Is that a crazy inference to draw?

MS. MESTER: (Laughs.) I like the way you put that. I think the meeting is going to be a discussion of 50 versus 75. And I’m going to wait until—I want to sit down and finalize my SEP, and look at what happens in the data next week, and then I’ll make a definitive. But I do believe that we do have to move interest rates up from current levels. And I do believe it’s very important that we follow through so that we can maintain inflation expectations being consistent with our 2% goal. We have seen longer-run inflation expectations move up over time. And it’s basically still consistent, I would say, with 2%. But it’s at the upper end of the range. And so I really think that we’ve got to be [watching] that very seriously and move to make sure that we are doing what we can to anchor those to be consistent with 2%.

MR. TIMIRAOS: Financial conditions appeared to ease after the July FOMC meeting, which was something of a surprise to a number of analysts I talked to because the committee had just done a second 75-basis point increase. It essentially added perhaps another 50 basis points in increases to what might have been inferred from the median June economic projection path. Did the market reaction to the press conference, which largely reflected what the minutes contained three weeks later, did that market reaction reveal anything to you about the communications challenge in an environment where the committee is trying to achieve and maintain a restrictive policy setting?

MS. MESTER: Not really, because I already know that communications are very complicated. Even in good economic times, it isn’t an easy thing to communicate policy. It’s hard. Economics is hard, right? Monetary policy-making is hard. We want to be very transparent. But we’re not prescient either. And so that’s a hard balance. You’re trying to be as communicative as you can about how we’re thinking about policy. In other words, in technical jargon, we want to convey our reaction function so that people know how we are likely to react, conditional on the economy moving in one way or the other, even though we don’t necessarily know exactly how the economy is going to move. That’s a hard problem—it’s hard to convey that to the public. And so I think it’s even more challenging now because we are in this very high inflation environment. People are being impacted by the high inflation, and not in good ways.

And so, yes, there are challenges. I do already take on board that it is challenging to communicate. And that’s why I think it’s very good that we are communicating and that the chair is talking in a way that is very transparent about his views on policy and representing the committee’s views on policy.

MR. TIMIRAOS: What was your opinion or your reaction to the chair’s speech at Jackson Hole?

MS. MESTER: I thought it was a very strong speech. And I think it was exactly the right message.

MR. TIMIRAOS: On Wednesday, I think you said that wage growth will need to moderate to around 3¼-3½%. When you look at inflation data, does that mean you will be placing greater weight on wages or on median CPI, or prices for nonhousing services—things that might have more of a wage or labor component to it?

MS. MESTER: Well, the point of that comment in the speech was just to give people the context of what would you probably need to see on the wage side in terms of increases to be consistent with 2%. And we’re well above that. So there will need to be some slowing in wage growth as we get closer and closer and closer to 2% inflation. Our goal is set in terms of PCE inflation. But I personally look at across a lot of inflation measures, because they inform me about the likely path of inflation.

So at the Cleveland Fed we have the Inflation Research Center. We’re looking at and we produce various measures of underlying inflation, because they tell us something about the inflation trend, which then informs our forecast and our projections about PCE, which is what our goal is termed in. So I don’t pick out I’m going to look at or focus on this particular aspect. But I’m going to be looking under the hood, so that I just have a better view of where is PCE inflation likely to go. And then, that informs my policy outlook.

MR. TIMIRAOS: You’ve spoken also about the lags of policy, and how it will be appropriate at some point to stop raising rates, even if inflation is not all the way back to 2%. I have a question about inertia in policy-making. Barring some obvious change in the data, getting people to agree on changing course is, perhaps, harder than getting people to agree to keep doing whatever it is they’ve been doing. If you’ve been holding, to stay on hold. If you’ve been raising rates, to keep raising. How are you thinking about a slowing or a stopping of policy rate increases, even if there’s a period in which you aren’t all the way back to 2%?

MS. MESTER: We do know that there’s long and variable lags in the impact of inflation on businesses and households in that real part of the economy, of interest rates on that. So we do need to be forward looking. That means I don’t think it’s appropriate that we continue to raise the fed-funds rate until inflation gets to 2%. That would just not be the appropriate path.

That said, the considerations today are, really, we’re at a very high inflation rate. CPI inflation is 8.5%. PCE inflation is over 6%. We’ve just got to take aggressive action to get that down. So that’s why I think we’re going to need to go up from where we are, and then hold for a while. As we get closer to 2% inflation, then that’s where you can have that conversation of, OK, we probably don’t need to be as aggressive now because we’re nearing in on our inflation target.

But that said, I want to be very clear that the inflation target is 2% inflation. Our long-run target is 2% inflation. So there’s no really thinking that, oh, we can give up when inflation gets to 3%. That’s not the way I think about it at all. It is going to be like, OK, as we get closer we’re going to have to do that evaluation, right? That evaluation assessment of how fast is demand moderating and getting into better balance with supply, and then what’s the appropriate path of making sure that we’re getting back to both of our goals and making progress on both of our goals? But this time, this is not the time for that. There’s no real nuance here because inflation is just so high.

MR. TIMIRAOS: So do the trade-offs change once you get inflation back to, say, 3%? At Jackson Hole,

Jason Furman

made that comment about the costs and benefits of going from 3% to 2% being weighed differently from the costs of getting inflation—or, the risks you take to get inflation from 5% or 6% down lower. Do you agree that the committee should or could be more patient once inflation gets to a level closer to 3? Or is it too soon to be even having this conversation?

MS. MESTER: Yes, it’s probably too soon to be having that conversation, but I don’t look at it as being that the trade-off has necessarily changed. I view it as we’re always steering the economy toward achieving both of our long-term goals. And so as you get closer to one of the goals, then you could say: Well, I don’t need to do as much on the policy side because we’re approaching the goal. And so it’s that analysis.

It’s not really changing the thought process, but it does change the appropriate policy path as you get closer to the goals, because you know that there are these long and variable lags, and so you don’t want to undershoot it and you don’t want to overshoot it. But as you get closer to the goal, that becomes a harder calculation, in some sense. And so you want to steer correctly so that you get to both of those goals.

That’s the way I view it. Right now inflation is so high that I don’t see this as a trade-off between our two goals. There’s no trade-off here, because if we don’t get back to price stability, we are not going to be able to have sustainable maximum employment. And so that’s why this is just a crucial time for us to be really focused on getting inflation down. As you get closer we will have to think about, OK, well, what’s the appropriate path? We’re getting closer. We know that there’s still probably cumulative effects of what we’ve done already.

And that’s where that calculation comes. But the sole focus is, in my mind, we need to get to both of our goals. Maximum employment and price stability. And then it’s a question of how do you view, given the information that’s coming in about where the economy is and where it’s evolving to, what’s the appropriate policy path that will get us to those goals.

MR. TIMIRAOS: What’s the appropriate time frame to get inflation back to 2%? Is this something that needs to be done in 24 months, 36 months, longer? How are you thinking about sort of the time component of the reaction function?

MS. MESTER: Right now my baseline forecast, and again I’m still finalizing my SEP, we’re going to get inflation—I do think inflation will be lower by the end of the year than it is now. I believe we’ll make appreciable, more progress next year. We won’t be at 2% next year, but we’ll see a noticeable decline. And then I will pencil in at this point that we’ll get—achieve our goal in 2024. And I think that is what’s achievable and what’s acceptable, from my point of view.

Write to Nick Timiraos at [email protected]

LORETTA MESTER: I think we are being data dependent. I certainly use the data to help inform my outlook. So there’s a link between the data and—when you’re thinking about monetary policy, of course, you’re looking out because there’s lag in the effects of monetary policy on inflation and maximum employment and progress toward those. So you need to be forward looking in terms of what is the data telling you about the outlook and what is the data informing you about potential risks to the outlook.

So that’s the context around which I am data dependent. I think sometimes maybe the words themselves can be misinterpreted as almost suggesting that a data point comes in and then we react to that data point. But when I think about data dependence, it’s the group of data, and then the second sentence is, and how it informs your outlook and the risks around the outlook.

So, for example, we’re going to be putting out new projections, the Summary of Economic Projections. Any changes in those will be reflective of what the incoming data since the last SEP has done to your outlook. And then, based on the outlook and given our goals, you might have to change your policy path to get there. And so that’s how I view it.

And so that’s what data dependence means, and I think we are being data dependent. So when I talked about, look, my current read is this, I also recognized that if we get data that come in and aren’t consistent with my outlook then I might have to change my views. If I get data that roughly is consistent—maybe a little bit up, little bit down of what I expected, but if the data themselves don’t have a material change on the outlook—then the policy path may not have to change. So, again, it’s this sort of filtering exercise of data come in and what is it telling you about the outlook.

And so in choosing sort of a policy path—and we do when we write down our SEPs—that’s how I approach it. And then there’s a number of tools that help you do that, of course. There’s models. There are the simple policy rules that we put out on our webpage, and those are informative but not definitive, right? I mean, if you look at those, you can see a lot of variations depending on what rule and what forecast you’re basing the rule on.

So, again, all of that is information that helps you determine where you think policy needs to go. And then, if data and information—and anecdotal reports, of course, are important in this kind of environment where it’s really in a lot of ways unprecedented—that also helps you evaluate where you—where you believe policy will need to get to in terms of the path in order to achieve our goals.

MR. TIMIRAOS: So when you said that you think rates probably need to get to—I think you said somewhat above 4%, how has—how has your view on the so-called terminal rate changed? Has it changed over the last three, four, six months? And to the extent that it’s changed, what has contributed to that change?

MS. MESTER: Yes. So that is really a view about where—based upon the fact that inflation has been persistently high, right? My view on policy is probably a little bit not necessarily the terminal rate being—because my SEP was around that—but it has brought it forward to thinking that we’re going to need to move a bit faster than I thought to get to that rate, given the persistence that we have in inflation. So it’s more of, perhaps, a timing issue and the fact that I think we’re going to have to be more persistent in keeping rates at that level. So right now, I don’t foresee us cutting rates next year, you know. As I said, I think going a little bit above 4% by early next year and then holding it there is what my policy path is, based on the current information I have. So, again, I would say it’s more about timing.

And coming into the last meeting, right when we were—where the debate was 50 [basis points] versus 75, I think that’s reflective of the fact that where you’re going to be in any particular meeting is really informed by, for my case, is what’s happening with the inflation numbers. And that’s because inflation is just so far above our long-term goal of 2%. That’s prominent in my mind. We’ve got to get that back down. So that’s guiding my views on where policy has to be.

MR. TIMIRAOS: I take your point about data dependence versus data-point dependence. I think sometimes people can focus a lot on one report, and that’s probably going to happen next week with the consumer-price index. So would a softer core inflation reading next week or a firmer one change your view enough about what you should do at any particular meeting? And here I’m talking about the September meeting. Or is it more likely to change your view about—to the extent that it changes your view, that it’s really about something beyond the September meeting?

MS. MESTER: Yes. As I’ve said, I really need to see compelling evidence that inflation’s coming back down. So I don’t expect one report or even if you think of the previous report as being that compelling evidence that would necessarily change my view of policy. But I do think it’s really important to look under the hood of that report and see what’s happening.

My own view is that, given past experience, the services inflation is going to be more persistent than some of the goods inflation has been, right? That’s been coming down partly because of what’s happening in oil prices and energy prices and some of the commodity side. I’m not even convinced that’s going to stay down because I do think that the Ukraine situation and European energy situation is going to have a large influence on oil prices later in the year. So I still think that we shouldn’t read that that’s necessarily going to stay where it is.

But set that aside. On the services side, that tends to be persistent. And rents have remained elevated despite some slowing in activity in the housing markets, partly because there’s an imbalance between supply and demand there. That usually creeps through to inflation with a pretty long lag. So, again, I think there’s good reason to believe that we may see services inflation stay up persistently. So I’m going to need to see more data to be able to say, “Hey, has inflation peaked?” And then we really want to see it on a downward path that’s sustainable toward 2%.

I would welcome a good report on inflation, but I don’t think that one report is going to change my view that we’re just really at a high inflation level and the risks are that it stays high. And if you’re doing risk management, if you do the risk-management approach, you should be really leaning against the high inflation—one, because high inflation itself is above our goal, way above our goal; and two, the longer it stays above, the more probability and chance there are that expectations are affected and move up, and longer-term expectations move up. And when you have that combination of high inflation and expectations being high, then it’s going to be much more difficult and much more costly to bring that inflation down.

So everything from the literature and, actually, experience suggests that you should be assuming that inflation—when you’re thinking about “what’s the appropriate policy path?”—is going to be persistent and lean in definitively against that. And so that’s also something that I take very seriously when I’m thinking about what the policy path is.

MR. TIMIRAOS: I know people don’t want to get pinned down on this business of telling reporters what they’re going to do at the next meeting, but I’ll just ask. Everything you’re saying sounds consistent with doing another 75-basis-point increase. Is that a crazy inference to draw?

MS. MESTER: (Laughs.) I like the way you put that. I think the meeting is going to be a discussion of 50 versus 75. And I’m going to wait until—I want to sit down and finalize my SEP, and look at what happens in the data next week, and then I’ll make a definitive. But I do believe that we do have to move interest rates up from current levels. And I do believe it’s very important that we follow through so that we can maintain inflation expectations being consistent with our 2% goal. We have seen longer-run inflation expectations move up over time. And it’s basically still consistent, I would say, with 2%. But it’s at the upper end of the range. And so I really think that we’ve got to be [watching] that very seriously and move to make sure that we are doing what we can to anchor those to be consistent with 2%.

MR. TIMIRAOS: Financial conditions appeared to ease after the July FOMC meeting, which was something of a surprise to a number of analysts I talked to because the committee had just done a second 75-basis point increase. It essentially added perhaps another 50 basis points in increases to what might have been inferred from the median June economic projection path. Did the market reaction to the press conference, which largely reflected what the minutes contained three weeks later, did that market reaction reveal anything to you about the communications challenge in an environment where the committee is trying to achieve and maintain a restrictive policy setting?

MS. MESTER: Not really, because I already know that communications are very complicated. Even in good economic times, it isn’t an easy thing to communicate policy. It’s hard. Economics is hard, right? Monetary policy-making is hard. We want to be very transparent. But we’re not prescient either. And so that’s a hard balance. You’re trying to be as communicative as you can about how we’re thinking about policy. In other words, in technical jargon, we want to convey our reaction function so that people know how we are likely to react, conditional on the economy moving in one way or the other, even though we don’t necessarily know exactly how the economy is going to move. That’s a hard problem—it’s hard to convey that to the public. And so I think it’s even more challenging now because we are in this very high inflation environment. People are being impacted by the high inflation, and not in good ways.

And so, yes, there are challenges. I do already take on board that it is challenging to communicate. And that’s why I think it’s very good that we are communicating and that the chair is talking in a way that is very transparent about his views on policy and representing the committee’s views on policy.

MR. TIMIRAOS: What was your opinion or your reaction to the chair’s speech at Jackson Hole?

MS. MESTER: I thought it was a very strong speech. And I think it was exactly the right message.

MR. TIMIRAOS: On Wednesday, I think you said that wage growth will need to moderate to around 3¼-3½%. When you look at inflation data, does that mean you will be placing greater weight on wages or on median CPI, or prices for nonhousing services—things that might have more of a wage or labor component to it?

MS. MESTER: Well, the point of that comment in the speech was just to give people the context of what would you probably need to see on the wage side in terms of increases to be consistent with 2%. And we’re well above that. So there will need to be some slowing in wage growth as we get closer and closer and closer to 2% inflation. Our goal is set in terms of PCE inflation. But I personally look at across a lot of inflation measures, because they inform me about the likely path of inflation.

So at the Cleveland Fed we have the Inflation Research Center. We’re looking at and we produce various measures of underlying inflation, because they tell us something about the inflation trend, which then informs our forecast and our projections about PCE, which is what our goal is termed in. So I don’t pick out I’m going to look at or focus on this particular aspect. But I’m going to be looking under the hood, so that I just have a better view of where is PCE inflation likely to go. And then, that informs my policy outlook.

MR. TIMIRAOS: You’ve spoken also about the lags of policy, and how it will be appropriate at some point to stop raising rates, even if inflation is not all the way back to 2%. I have a question about inertia in policy-making. Barring some obvious change in the data, getting people to agree on changing course is, perhaps, harder than getting people to agree to keep doing whatever it is they’ve been doing. If you’ve been holding, to stay on hold. If you’ve been raising rates, to keep raising. How are you thinking about a slowing or a stopping of policy rate increases, even if there’s a period in which you aren’t all the way back to 2%?

MS. MESTER: We do know that there’s long and variable lags in the impact of inflation on businesses and households in that real part of the economy, of interest rates on that. So we do need to be forward looking. That means I don’t think it’s appropriate that we continue to raise the fed-funds rate until inflation gets to 2%. That would just not be the appropriate path.

That said, the considerations today are, really, we’re at a very high inflation rate. CPI inflation is 8.5%. PCE inflation is over 6%. We’ve just got to take aggressive action to get that down. So that’s why I think we’re going to need to go up from where we are, and then hold for a while. As we get closer to 2% inflation, then that’s where you can have that conversation of, OK, we probably don’t need to be as aggressive now because we’re nearing in on our inflation target.

But that said, I want to be very clear that the inflation target is 2% inflation. Our long-run target is 2% inflation. So there’s no really thinking that, oh, we can give up when inflation gets to 3%. That’s not the way I think about it at all. It is going to be like, OK, as we get closer we’re going to have to do that evaluation, right? That evaluation assessment of how fast is demand moderating and getting into better balance with supply, and then what’s the appropriate path of making sure that we’re getting back to both of our goals and making progress on both of our goals? But this time, this is not the time for that. There’s no real nuance here because inflation is just so high.

MR. TIMIRAOS: So do the trade-offs change once you get inflation back to, say, 3%? At Jackson Hole,

Jason Furman

made that comment about the costs and benefits of going from 3% to 2% being weighed differently from the costs of getting inflation—or, the risks you take to get inflation from 5% or 6% down lower. Do you agree that the committee should or could be more patient once inflation gets to a level closer to 3? Or is it too soon to be even having this conversation?

MS. MESTER: Yes, it’s probably too soon to be having that conversation, but I don’t look at it as being that the trade-off has necessarily changed. I view it as we’re always steering the economy toward achieving both of our long-term goals. And so as you get closer to one of the goals, then you could say: Well, I don’t need to do as much on the policy side because we’re approaching the goal. And so it’s that analysis.

It’s not really changing the thought process, but it does change the appropriate policy path as you get closer to the goals, because you know that there are these long and variable lags, and so you don’t want to undershoot it and you don’t want to overshoot it. But as you get closer to the goal, that becomes a harder calculation, in some sense. And so you want to steer correctly so that you get to both of those goals.

That’s the way I view it. Right now inflation is so high that I don’t see this as a trade-off between our two goals. There’s no trade-off here, because if we don’t get back to price stability, we are not going to be able to have sustainable maximum employment. And so that’s why this is just a crucial time for us to be really focused on getting inflation down. As you get closer we will have to think about, OK, well, what’s the appropriate path? We’re getting closer. We know that there’s still probably cumulative effects of what we’ve done already.

And that’s where that calculation comes. But the sole focus is, in my mind, we need to get to both of our goals. Maximum employment and price stability. And then it’s a question of how do you view, given the information that’s coming in about where the economy is and where it’s evolving to, what’s the appropriate policy path that will get us to those goals.

MR. TIMIRAOS: What’s the appropriate time frame to get inflation back to 2%? Is this something that needs to be done in 24 months, 36 months, longer? How are you thinking about sort of the time component of the reaction function?

MS. MESTER: Right now my baseline forecast, and again I’m still finalizing my SEP, we’re going to get inflation—I do think inflation will be lower by the end of the year than it is now. I believe we’ll make appreciable, more progress next year. We won’t be at 2% next year, but we’ll see a noticeable decline. And then I will pencil in at this point that we’ll get—achieve our goal in 2024. And I think that is what’s achievable and what’s acceptable, from my point of view.

Write to Nick Timiraos at [email protected]