By Michael S. Derby

NEW YORK Federal Reserve Bank of Cleveland President Loretta Mester said on Friday it's quite possible the central bank will raise rates again.

"We probably have some work to do" with monetary policy to bring inflation back to 2%, Mester said in a CNBC interview. However, she declined to say how much more the Fed might have to boost short-term borrowing costs.

She said the key issue for the central bank is to decide how restrictive monetary policy needs to be, and how long it needs to stay at those levels.

Mester's comments on rates came after a speech by Fed Chairman Jerome Powell that kept of the possibility of more increases on the table without promising them. The Fed boosted its overnight target rate range by a quarter percentage point to between 5.25% and 5.50% at its late July policy meeting, as part of its ongoing campaign to slow the economy and bring inflation back down to 2%.

Inflation has been falling but it is still at unacceptably high levels by Fed reckoning. Given how much the Fed has boosted its target rate, there is an ongoing debate as to whether the central bank needs to do more or allow the full weight of its past actions to do the heavy lifting of lowering inflation.

"We've come a long way, but you know, we don't want to be satisfied because inflation remains too high," Mester said. "We need to see more evidence to be assured that [inflation is] coming down in a sustainable way and in a timely way."

Mester said the Fed now faces a balancing act, saying it is very important for the central bank to be diligent, noting "we don't want to over tighten, we don't want to undershoot."

Mester, who does not hold a vote on the rate-setting Federal Open Market Committee this year, said she does not currently expect the Fed to lower its rate target next year. Financial markets currently project the Fed will bypass raising rates at the September policy meeting.

(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)