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Fed’s Mester says rates likely will need to rise a bit

Fed's Mester says rates likely will need to rise a bit© Reuters. Loretta Mester, president of the Federal Reserve Bank of Cleveland, speaks during an interview in Manhattan, New York

NEWARK, Del. (Reuters) – The Federal Reserve may need to raise interest rates further but it has time to assess how the economy is doing before tightening borrowing conditions, Cleveland Federal Reserve President Loretta Mester said on Tuesday.

“Monetary policy does not appear to be far behind or far ahead of the curve,” Mester said in prepared remarks at an event at the University of Delaware. “This environment gives us the opportunity to continue to gather information on the economy.”

Mester, long a proponent for higher rates, does not have a vote on the Fed’s rate-setting committee this year although she participates in the central bank’s deliberations.

But she has supported the Fed’s recent shift to a wait-and-see stance on rate policy. The Fed, in its policy statement last month, removed guidance on whether its next move was likely to be raising or lowering rates.

Mester said the dropping of the guidance was part of the Fed’s shift to what she called more “normal” policy and made clear she still thinks the Fed’s next more is likely to be a tightening of borrowing conditions.

Mester said economic growth was likely to continue in 2019 albeit at a slower pace than last year and that job growth would also slow. She said inflation was likely to stay near the Fed’s 2 percent target.

“If the economy performs along the lines that I’ve outlined as most likely, the fed funds rate may need to move a bit higher than current levels,” Mester said.

At the same time, she acknowledged risks to the economy from slower economic growth in Europe and China as well as ongoing trade negotiations between the United States and China.

If some of those risks end up slowing the economy more than expected, she said, “I will need to adjust my outlook and policy views.”

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Source: Investing.com

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