Fed's Loretta Mester sees interest rates up slightly this year

NEWARK, Del. – The president of the US Federal Reserve in Cleveland said Tuesday that interest rates would likely increase slightly this year, assuming that the economy 's growth is as good as expected.

"If the economy behaves as expected, the federal funds rate could rise to a bit above the current level," said Cleveland Fed President Loretta Mester in a speech at the US Treasury. University of Delaware. central bank rate.

Mester, who is not a voting member of the Federal Open Market Committee, said a "neutral" rate that neither stimulates nor stimulates economic growth should be around 3%. The federal funds rate is currently set between 2.25% and 2.5%.

"Some additional rate increases put you more in the neutral range and then we have to wait to see how the economy evolves," Mester told reporters after the event.

She said the Fed's next rate move would likely be "a little later this year".

Ms Mester described the year 2019 as a year of transition for both the US economy and monetary policy.

The economy, which is expected to grow nearly 3% in 2018 thanks to recent tax cuts and spending increases, is expected to slow to a more sustainable growth pace this year.

Ms. Mester stated that she fully supported the Federal Reserve's current approach to rate hikes after raising borrowing costs four times in increments. percentage points in 2018.

"In my opinion, the most likely case is that this year, the economy will grow faster than the trend at a slightly slower pace," Ms. Mester said.

She said she expected economic growth of between 2% and 2.5% in 2019, an unemployment rate of "less than or equal to 4%" and inflation close to 2%.

Although US economic fundamentals "remain healthy," Mester pointed to "some cross currents and headwinds." I said.

"If some of the downside risks come up and the economy is weaker than expected and jeopardizes our dual mandate goals, I will have to adjust my outlook and my policy vision," Mester said.

With interest rates currently at the bottom end of the central bank's estimate of where they will be, the Fed has time to observe the performance of the economy before making its decision.

"Monetary policy does not seem to be very late or ahead of the curve," Mester said. "This environment gives us the opportunity to continue to gather information about the economy and assess our medium-term forecasts and the risks around them, before making further adjustments to the key rate."

Indicators that the Fed will monitor include official statistics, financial market indicators, sentiment surveys and anecdotal reports of business contacts.

Ms. Mester pointed out that the unemployment rate was an important indicator, given the historical connection between low unemployment and inflation. If the rate goes "significantly" below 4%, she said, the Fed may have to raise rates more than otherwise.

The central bank added that it also expected the Fed to complete its plans to reduce its holdings of bonds and mortgage-backed securities "in future meetings".

At present, the Fed authorizes the exit of its balance sheet each month up to $ 30 billion of Treasury debt and up to $ 20 billion of mortgage-backed securities.

Ms Mester said she would prefer the Fed to stop this runoff by the end of the year, depending on the performance of the economy.

Write to Paul Kiernan at [email protected]

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