Federal Reserve Bank of Cleveland President Loretta Mester said
policy makers don’t want to surprise the market on interest rates and
they have to be “nimble” to adjust their outlook amid global and
domestic risks.
“We certainly never want to surprise the markets,”
Mester said Wednesday in an interview from Singapore with Bloomberg
Television’s Haidi Lun. “But I think most people, when they’re thinking
about the U.S. economy, see it on a pretty good and sound footing.”
Fed’s Mester discusses the state of the U.S. economy and monetary policy
(Source: Bloomberg)
Investor
expectations for an interest-rate increase at the Fed’s next policy
meeting rose after Chair Janet Yellen indicated Feb. 14 that she foresees
additional tightening this year regardless of whether President Donald
Trump follows through on plans to pursue pro-growth fiscal measures.
Policy makers gather March 14-15 in Washington.
“We’ll just have to see how the economy plays out and assess
the package when we get more details,” Mester said. “We have to be
nimble about it in terms of being willing to change our policy path if
we think that the economy is evolving differently than we anticipate.”
Global risks and uncertainty in the U.S. means the Fed may adjust its forecasts more frequently, Mester said.
“In
a particular environment like this, we might see more changes in our
forecasts and associated policy paths than we might have seen over the
past couple of years,” she said. “But I think that’s good, we want
policy to take into account these changes.”
Inflation Pressure
Mester
reiterated comments made on Feb. 20 that she would be “comfortable”
with higher rates in response to rising price pressures, though she said
the Fed was not yet “behind the curve” in addressing inflation.
The
Fed’s preferred gauge of inflation jumped to 1.6 percent in the 12
months through December, up from 1.4 percent in the year through
November, though it remains below the Fed’s target of 2 percent.
Excluding food and energy components, inflation was almost unchanged at
1.7 percent.
Wages have risen only modestly in recent months despite
continued strong gains in the labor market where employers have added
about 1.1 million jobs in the past 6 months, with unemployment already
below 5 percent.
The Fed is scheduled to release Wednesday minutes
from its most recent meeting, at which officials kept rates on hold.
Derivatives traders are pricing in a 38 percent probability the U.S.
central bank will act next month and a 60 percent chance it will tighten
by its May meeting.
