Mester: Hike Not Needed at Every Meeting

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While the removal of accommodation needs to pick up the pace from the once a year rate increases of the past two years, the Federal Open Market Committee does not need to raise rates at every meeting, Federal Reserve Bank of Cleveland President Loretta Mester said Thursday.

"My current assessment is that the pace of removal won't call for an increase in the fed funds rate at each meeting, but it does mean more than the one-increase-per-year seen in the past two years," Mester said according to prepared text of a speech she was to deliver in Chicago.

"The appropriate adjustments in monetary policy are those that will sustain the expansion so that our longer-run goals of price stability and maximum employment are met and maintained," she said. "If economic conditions evolve as anticipated, I believe further removal of accommodation via increases in the fed funds rate will be needed."

Raising rates will help lengthen the expansion, "not curtail it." The hike will reduce the possibility of "a build-up of risks to macroeconomic stability that could arise if the economy is allowed to overheat, as well as risks to financial stability if interest rates remain too low and encourage investors to take on excessively risky investments in a search for yield."

Should conditions evolve as planned, Mester said, "I would be comfortable changing our reinvestment policy this year. I view this as consistent with our principles of policy normalization" and the Fed's stated plan to continue reinvestment "until normalization of the level of the federal funds rate is well under way."

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