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Cleveland Fed's Mester explains 'no' vote on emergency rate cut

Written by Jasir Jawaid

Cleveland Fed President Loretta Mester, the lone dissent against the rate cut at the Federal Reserve's March 15 emergency meeting, argued that she would have preferred for the Fed to hold onto the option of another rate cut in the future.

In voting against cutting the federal funds rate to a target range of zero to 0.25%, Mester said she supported the Fed's actions to ensure the smooth flow of credit but that she preferred a more modest rate cut that would have set the federal funds rate at a range of 0.5% to 0.75%.

"I did not favor returning the funds rate to zero and using up all of our interest-rate policy space at this time when the transmission mechanism of monetary policy to the economy is impaired," she said in a statement.

"I preferred to stage our policy actions by first providing liquidity to improve market functioning, supported by a smaller reduction in the funds rate."

This would have allowed the Fed to further cut rates, if needed, once market functioning had improved, she wrote.

If market illiquidity continues, Mester said she would support further actions to address funding needs, including a commercial paper funding facility and a term auction facility.

This article was published by S&P Global Market Intelligence on the S&P Capital IQ Pro platform.


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