By Howard Schneider

AMELIA ISLAND FL (Reuters) – Before the Federal Reserve can stop its interest rates increases, inflation will have to demonstrate a “compelling” slowdown, Loretta Mester of Cleveland Federal Reserve said Tuesday. There are risks that the Federal Reserve may need to fight harder to reduce the rate of price rises.

Mester stated that “I would have to see monthly figures falling in a compelling manner before I would like to conclude that we can now rest.” Mester spoke to Reuters at an Atlanta Federal Reserve Bank conference.

Mester stated that the Fed should do more ahead of time than wait due to “the risk to inflation” caused by the Ukraine conflict, the ongoing coronavirus lockdowns and other factors.

Half-point increases in the Fed’s short-term rate are expected. “Then we have to watch” how inflation behaves and then debate whether higher rates should be moved, Mester stated.

On Wednesday, new government data is expected to reveal that consumer prices rose more than 8 percent last year. However, it may have been a little slower in March which could indicate that inflation has reached its peak.

Fed policymakers set a target of 2% inflation using an additional measure, which is currently running at three times that target level. In March, they raised interest rates to reduce consumer spending and to bring demand for goods closer to what an economy with a stretched budget can produce.

Mester’s remarks point out that there is still much to be debated about how policymakers will assess incoming data and what progress they need to make on inflation in order to slow down or stop further rate rises.

Fed officials cautioned this week about the possibility of a slow down in demand if interest rates rise. This is why it’s important to raise rates with care.

Mester indicated that she would be open to any possibility that excess demand falls faster than predicted or the world’s supply chain improves more quickly.

She said that she expected the Fed to raise its policy rate from 2.5% to “neutral” and move to a level which would restrict the economy, and increase the likelihood of unemployment rising from 3.6%.

She said that even then she didn’t expect the Fed would win the fight against inflation in full this year, or next. But she was confident they will get on the right track.

“I don’t think it will get back to 2% next year. She said that it would be on track, within the two- and half percent range but in the right direction. That is acceptable, given the current state of the economy and the fact that inflation is affected by factors outside our control.