Mester sees rates rising if economy moves as forecast

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While it is possible that the Federal Reserve’s hiking cycle is complete, but the more likely scenario is rates will go “a bit higher,” Federal Reserve Bank of Cleveland President Loretta Mester said Thursday.

“Could we be done with policy rate increases this cycle? It is possible, but if the economy performs along the lines I think is the most likely case — with growth picking back up to, or slightly above, trend, labor markets remaining strong, and inflation staying near 2% — the fed funds rate may need to move a bit higher than current levels,” Mester said at 2019 Ohio Bankers Day, according to prepared text released by the Fed.

With inflation in check and labor markets strong, she said, “I see no urgency to change our policy stance. In my view, monetary policy does not appear to be far behind or far ahead of the curve.”

The Fed can watch the economy evolve, gather more data “and assess our medium-run economic forecast and the risks to that forecast.”

By taking a patient approach, “I believe that the economy is going to give us a good sense of whether policy is where it needs to be or whether further action is needed,” she said.

The slowdown in the economy should be short-lived and should grow at or slightly more than 2%, with core inflation also near 2%, she said.

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Monetary policy Loretta Mester Federal Reserve Federal Reserve Bank of Cleveland FOMC