Fed's Mester says rates need to rise "a little bit" above 5%

(Reuters) - The Federal Reserve needs to raise interest rates a "little bit" above the 5.00% to 5.25% range in order to bring inflation to heel, Cleveland Fed President Loretta Mester said on Wednesday, as she declined to disclose her preferred size of move at the upcoming policy meeting.

"We're not at 5% yet, we're not above 5%, which I think is going to be needed given where my projections are for the economy," Mester said in an interview with the Associated Press. "I just think we need to keep going, and we'll discuss at the meeting how much to do."

The Fed's benchmark overnight lending rate currently sits in a target range of 4.25% to 4.50% and investors expect the central bank to raise its policy rate by a quarter percentage point at the conclusion of its next two-day meeting on Jan. 31 -Feb. 1 with inflation appearing to be past its peak.

"We're beginning to see the kind of actions that we need to see," Mester added. "Good signs that things are moving in the right direction ... That's important input into how we're thinking about where policy needs to go."

Fed Chair Jerome Powell tested positive for COVID-19 on Wednesday and is experiencing mild symptoms, the central bank said in a statement on Wednesday.

(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama)