Fed’s Mester Says US Economy Can Handle Two More Rate Hikes

Members of the Federal Reserve are telegraphing two more rate hikes this year, with Federal Open Market Committee voting member Loretta Mester on Wednesday repeating the central bank’s expectation for the next six months.

“The economy can certainly handle two more increases this year,” Mester, the president of the Cleveland branch of the Fed, said in an interview with The Wall Street Journal. “We could end up getting behind if we don’t keep moving things up, so I’m very comfortable, if the economy stays on the path it’s going that we move rates up as appropriate this year.”

When hiking its benchmark short-term interest rate a quarter percentage point in June, the Fed stated two more hikes would be appropriate in 2018. This would bring the year’s total to four. Despite this, traders are expecting just a 55 percent chance of a fourth hike in December — a little better than a coin flip and just 10 percentage points or so above the chances before the meeting. Those watching the markets center these comparatively low odds on the belief that the Fed will have limited room to move considering the dovish position of many of its global counterparts.

Mester said she expects the Committee to increase the fed-funds rate to 3 percent, from today’s range of 1.75 percent to 2 percent.

“We are still in an accommodative stance on monetary policy, and yet we have a very strong economy. And we’re very near our goals,” Mester said in the report. “To me, that’s a compelling case that we want to keep on this path” of gradually raising rates.”

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