Federal Reserve Bank of Cleveland President Loretta Mester said the case for raising interest rates is “pretty compelling” given the economy’s strength, reinforcing expectations that the central bank will boost borrowing costs at its next meeting in September.
“We have an economy that’s growing above trend, we have low unemployment and we have inflation at basically our goal of 2%,” Mester said in a Bloomberg Television interview on Friday as the central bank’s annual policy symposium in Jackson Hole, Wyo., gets under way. “This gradual increase in rates seems to be a very compelling case right now, given that we are accommodative still on monetary policy.”
She downplayed concern that the flattening Treasury yield curve signals that the U.S. is approaching a recession, as it has indicated in previous expansions. Other reasons for the narrower gap between short-term and long-term rates include demand for safe assets such as Treasuries, as well as bond purchases by central banks around the world, Mester said.
An escalating trade war with retaliatory tariffs could pose a risk to the economy and would also potentially boost inflation, she said.
