Fed's Loretta Mester: Economy still 'strong,' 'gradual' rate hikes likely

Loretta Mester, president of the Cleveland Federal Reserve.
David Orrell | CNBC
Loretta Mester, president of the Cleveland Federal Reserve.

Economic fundamentals remain strong despite the recent tumult in financial markets that has led to rising expectations of a recession, Cleveland Fed President Loretta Mester said Friday.

Consequently, Mester said she expects the U.S. central bank to continue on a "gradual" pace of rate increases. Mester's remarks come as the U.S. economy grew just 0.7 percent in the fourth quarter, stock market averages have gone into correction and Wall Street forecasts have declined considerably for the year.

Nevertheless, Mester — one of the Federal Open Market Committee's more hawkish members — said she expects the U.S. to shake off the current problems.

"Solid labor market indicators, including strong payroll growth, and healthy growth in real disposable income suggest that underlying U.S. economic fundamentals remain sound," Mester said, according to prepared remarks she was to give to the Global Interdependence Center in Sarasota, Florida.