Fed's Mester: We can't afford to fall behind curve

Economy 7/12/2018, 3:12 PM
Fed's Mester: We can't afford to fall behind curve

The head of the United States Federal Reserve's subsidiary in Cleveland remained on the hawkish side of the policy fence, saying on Thursday that economic indicators show robustness that could withhold two more increases this year in the benchmark interest rate. Loretta Mester warned policymakers "could end up getting behind" the curve, according to the Wall Street Journal. The target range has been raised in steps of a quarter of a percentage point each gradually since late December 2015, with the latest move placing it between 1.75% and 2% in June.

Fed officials should "keep moving things up" with the current pace of growth, low unemployment and stable inflation, she claimed. The latest consensus within the central bank matches her outlook for four hikes in total in 2018. Mester estimated the neutral rate is in the range of 3%, meaning that rate-setters would make conditions restrictive if the mark would be topped now.

The target inflation and unemployment is "very near," she added and called for the continuation of a gradual approach to tightening. The Cleveland Fed president asserted capital requirements for banks need to be stricter.

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