Federal Reserve Bank of Cleveland President Loretta Mester on Wednesday told an MNI Webcast she sees signs that U.S. wage pressures are beginning to stabilize as the labor market starts to cool but pledged to be on guard against declaring victory over inflation too soon.

She repeated her call to lift the Fed's benchmark interest rate "somewhat above 4% by early next year and hold it there," but did not specifically advocate for either a 75 basis point or 50 basis point rate increase later this month.

"While it is clear that the fed funds rate needs to move up from its current level, the size of rate increases at any particular FOMC meeting and the peak fed funds rate will depend on the inflation outlook, which depends on the assessment of how rapidly aggregate demand and supply are coming back into better balance and price pressures are being reduced," she said.

She added: "I do not anticipate the Fed cutting the fed funds rate target next year."

LABOR MARKET COOLING

The August jobs report "suggests that we are beginning to see some moderation but that labor market conditions remain strong," Mester said. Average monthly job gains have slowed to 440,000 this year from over 550,000 last year.

Recent reports suggest "wage pressures may be beginning to stabilize, but they remain high," she added.

"In formulating my monetary policy views, I will be guarding against declaring victory over the inflation beast too soon," she said. "Doing so would put us back in the stop-and-go monetary policy world of the 1970s, which was very costly to households and businesses."