Cleveland Fed Chief Wants CB to be Preemptive With Rates

Cleveland Federal Reserve Bank President Loretta Mester warned Friday policymakers cannot wait until inflation hits 2% before continuing with normalizing interest rates.

“I don’t think we can wait until inflation gets back up to 2%. We’ve learned over time that we need to be preemptive and that means we need to be forward-looking,” she said in a CNBC interview.

“I admit that it’s hard to forecast inflation,” but “where inflation is today is not a very good forecast of where it’s going tomorrow, Mester said on the sidelines of the Fed’s annual economic symposium in Jackson Hole, Wyo.

“Inflation is the place where there’s been a couple of weak readings, but again the best forecast has it going back up to 2% gradually over time. It seems it’s time to keep on this gradual reduction of accommodation,” Mester said. She is not a voter on the Federal Open Market Committee this year.

She said she see GDP growing “a bit above” 2% this year, her projection of the longer term trend for economic expansion, driven by momentum in the underlying economy.

The labor market has continued to be strong, adding about 180,000 new jobs a month, “which is a very good thing,” and business investment has bounced back from very low levels, Mester said.

All that happened without much help from fiscal initiatives from the new administration.

Business confidence, which jumped after the presidential election in November, hadn’t translated into improved economic activity. Now facing uncertainty over tax and regulatory reforms, firms in her region are in a wait-and-see mode, Mester said. “So if anything, it actually may be a little weakening in activity.”

Mester said she’s “not overly concerned” with the level of stock prices at the moment because earnings are robust and low rates make asset prices look a little higher than they would otherwise.

via MNI News

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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