Cleveland Fed President Loretta Mester said Thursday that interest rates need to rise above 5% given stubborn inflation, but how much above 5% will depend on economic and financial developments.

“I do think that given how stubborn inflation is and given the still strong labor market, I do think that rates are going to have to move up to above that 5% level," Mester told Yahoo Finance LIVE in an exclusive interview. "But how much they have to move up and for how long they'll have to remain there that's what the economy is going to tell us.”

The Fed has raised rates 4.75 percentage points over the past year. The policy rate now stands in a range of 4.75%-5% with officials projecting one more rate hike to a level of 5%-5.25% before pausing.

Mester, a non-voting member, says the Fed is closer to the end of the tightening journey than the beginning. She said she will wait until the next policy meeting in May to decide whether rates should be raised at that meeting or a later one. Mester says that she will also take into account whether banks are tightening their lending conditions and what impact that has on the economy.

“What we really need to do is we need to make sure that we get that inflation rate on that sustainable downward path. That's my focus,” said Mester. “The tightening of credit conditions, either from the Fed or perhaps from banks, tightening their lending standards, that’s more of a mechanism for getting that done.”

Mester said the stresses experienced in the banking system in March have eased, but that some of the increases in interest rates and tightening of financial conditions have yet to be felt and the central bank should be “prudent” in how much it raises interest rates depending on how previous rate hikes and credit tightening take hold.

“The question now going forward is will stresses in the banking industry, those stresses in March lead banks to move faster, to tighten their credit standards, and if so, credit will become less available,” she said. “That has the same kind of impact on the economy as tightening a monetary policy. So we're doing that assessment.”

Mester said while progress has been made, inflation is still too high, noting that inflation in core services excluding shelter has not improved. Though she thinks inflation will improve materially this year, in part as the job market slows.

When asked whether she agreed with Federal Reserve staff that a mild recession is coming later this year on account of bank failures and tightening credit conditions, Mester said she only anticipates economic growth will be slow this year, below 1%, slow growth below 1%. Though she said in such a low growth scenario it wouldn’t take much of a shock to send growth below zero.

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