(Reuters) – The Federal Reserve wants to lift charges by a half-of-a-percentage level at every of its subsequent two conferences, after which assess if inflation has moderated sufficient to sluggish the tempo of price hikes or if it must jack them up additional, Cleveland Federal Reserve Financial institution President Loretta Mester mentioned on Thursday.

And whereas that course of could possibly be “painful” for households and companies, she mentioned, it will be worse to permit inflation – now operating at a 40-year excessive and greater than 3 times the Fed’s 2% aim – to proceed to sap shopping for energy and undermine financial momentum.

“Monetary markets might stay very unstable as monetary situations tighten additional; development might sluggish considerably greater than anticipated for a few quarters; and the unemployment price might briefly transfer above estimates of its longer-run degree,” Mester mentioned in remarks ready for supply to the Philadelphia Council for Enterprise Economics. “This shall be painful however so is excessive inflation.”

Fed policymakers this 12 months have lifted the coverage price to a spread of 0.75%-1%, and beginning this month to trim its practically $9 trillion stability sheet to place additional upward strain on borrowing prices.

Most Fed policymakers, like Mester, again elevating charges one other full share level over the subsequent two Fed conferences, in June and July.

The outlook for September and past is much less sure, and not less than one policymaker, Atlanta Fed President Raphael Bostic, has mentioned he might see pausing coverage tightening at that time to take inventory of the financial system and never overshoot.

Mester’s remarks and people of Vice Chair Lael Brainard earlier Thursday recommend, nevertheless, that the selection will extra doubtless be across the tempo of price hikes, and never whether or not to proceed them or not.

Certainly, critics say the central financial institution has moved too slowly and warn that steeper price hikes shall be wanted to sluggish value pressures, doubtless throwing the U.S. financial system right into a recession.

Mester mentioned she didn’t see the present scenario as requiring the Fed to sacrifice a robust labor marketplace for the sake of bringing down inflation.

However she did make it clear that she takes current surveys exhibiting rising inflation expectations as a critical concern, and she or he is just not satisfied that inflation has peaked.

“The chance of recession has risen, however as a result of underlying mixture demand momentum and the demand for labor are so robust, a superb case can nonetheless be made that as demand and provide come into higher stability, a pointy slowdown might be prevented, with development slowing to a pattern tempo this 12 months, labor market situations remaining wholesome, and inflation transferring right down to a 4‑1/2 to five‑1/2 p.c vary this 12 months and declining additional subsequent 12 months,” Mester mentioned.