Fed’s Mester preferred to retain some rate-cut ammunition for when coronavirus crisis was easing

Cleveland Fed President Loretta Mester on Tuesday said she thought it would have been better if the central bank hadn’t used all of its interest-rate ammunition this week, saying it would have been better to hold some in reserve for when the crisis has eased.

Mester was the only voting member of the Fed’s interest-rate committee to dissent from the full-percentage-point rate cut announced Sunday.

The Fed cut brought its benchmark rate down to a range from zero to 0.25%. This is the “zero lower bound” and any further stimulus will have to come from other tools.

In a statement published on her regional bank’s website, Mester explained her support for a smaller, half-point, rate cut.

This would have preserved the option of a further cut for when “life begins to return to some semblance of normal,” Mester said.

Mester said market functioning DJIA, +2.36%SPX, +3.43% had been impaired, and the benefits of rate cuts would not be felt as strongly in the economy.

Over time, market functioning will improve, and another rate cut would be more effective, Mester said.

The Cleveland Fed president stressed she fully supported the other steps the Fed took, including quantitative easing, to promote smooth functioning of financial markets.