Cleveland Fed Chief Loretta Mester Speaks About US Economy on Stable Ground

Loretta Mester, the President of Cleveland Federal Reserve was in Singapore attending a one-day banking conference by Global Interdependence Centre. This is a non-profit organisation that works for the promotion of free trade.

Here Mester said that as US economy now looks on a sound footing, it is the ideal atmosphere for increasing the federal rates.

She said, “We did have a temporary oil price shock which held down inflation, we had the dollar appreciation which held down inflation. Those have passed through and the trend in inflation is, it’s moving up.So I’m comfortable that inflation is near its goal and moving toward its goal… I’d be comfortable with an increase in the (federal) funds rate at this point, if the economy keeps going the way it’s going.”

Even Janet Yellen, the Fed Chair has indicated about the same said last week and many analysts were of the opinion that she will raise it in the upcoming meeting of Fed in March. She has however raised doubts that under Trump’s administration there’s a certain uncertainty that keeps looming over the economic conditions and it will take some time before a clearer picture emerges.

Mester is known for being really hawkish when it comes to policies and she has dissented in the past for raising the interest rates. But now she feels that the time is ripe for returning to normalcy in policy.

She reiterated that the Fed is looking forward to trimming its holdings of $4.5-trillion mortgage-backed bonds and will return to the normal all-Treasury holding. She emphasised that returning to the Treasuries will no doubt take some more time, but it is something that will be done eventually. “It will help the Fed to guard itself against future calls for Federal Reserve to enter into the realm of fiscal policy,” she said addressing the gathering.

In the past two years, Fed has raised the rates twice. The data indicates that the economy is now stable and thus it is expected that the pace will pick up in the current year. The unemployment figure of 4.8 percent is nearly at the equilibrium level. Trump in his speeches has said several times that he will bring in policies that will provide fiscal stimulus. Based on these assurances, even the US markets are on a northward trajectory since his victory.

Though Mester voiced her opinion at the conference, she cannot vote on FOMC (Federal Open Market Committee) until next year. But, she being characterised as a hawkish member of FOMC, it is her task to be more concerned about the battle against inflation.


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