Fed’s Mester Says Stock Market Volatility Not Damaging for Economic Strength

The recent stock market sell-off and jump in volatility will not damage the economy’s overall strong prospects, Cleveland Federal Reserve president Loretta Mester said on Tuesday in warning against any overreaction to the turbulence in financial markets.

“While a deeper and more persistent drop in equity markets could dash confidence and lead to a pullback in risk-taking and spending, the movements we have seen are far away from this scenario,” Mester said of a market rout that cut more than 10 percent from major stock indexes.

That occurred, Mester said, only after a record-setting run, and “for now, I expect the economy will work through this episode of market turbulence and I have not changed my outlook. In my view, the underlying fundamentals supporting the economy are very sound.”



Her remarks to the Dayton Area Chamber of Commerce are an important signal from one of the Fed policymakers who has voiced stronger concerns about financial market stability and the prospects that the central bank may risk a run-up in inflation by not raising rates quickly enough.

She said that as of now policy should tighten at a pace “similar to last year’s,” when the Fed raised rates three times. The median outlook among policymakers is currently for three rate increases this year as well.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza