Loretta J. Mester, president of the Federal Reserve Bank of Cleveland said on Thursday that the Fed should raise interest rates to above 4% in order to bring inflation back down to target.

"I would pencil in going a bit above four as appropriate," Mester told reporters following an event held at the Economic Club of Pittsburgh, in reference to the central bank's policy rate. "It's not unreasonable I think to maintain that as where we're getting to and then we'll see."

Key quotes

• Business contacts tell me not looking for as many workers as before.
• But these are only nascent signs; labour market still quite strong.
• Fed's framework still stands up with respect to our dual goals.
• But there are lessons to be learned on not having such strict forward guidance again.
• Need to see several months of monthly changes moving down on inflation.
• We will need to raise interest rates and then hold them there for a while.
• Then we'll bring them back down once inflation gets back closer to our 2% goal.
• I would pencil in going a bit above 4% on interest rates.
• That's what I had in my Sep at the last meeting.
• Not unreasonable to think we might have to do a 75 in September; but it could very well be 50 and we'll be guided by the data.
• Interest rates should continue to rise this year and through the first half of next year; then we can maybe pause and start bringing them back down.

US dollar update

Meanwhile, the US dollar was lower vs. most major currencies on Thursday, down some 0.5% at the time of writing as per the DXY to 105.81. The positive impact of hawkish Federal Reserve comments faded this week while investors waited for more signs on the data front. Friday's Nonfarm Payrolls and next week's inflation data will be critical.