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Fed's goals largely met, US rate hikes on track: Mester

  • Continued strong demand for safe assets along with sluggish growth in the U.S. workforce will hold down U.S. interest rates for the foreseeable future, Bullard said.
  • Bullard last year switched his view of the economy after concluding the U.S. was in a low-inflation, low-growth "regime" that was unlikely to change soon.
Loretta Mester
Gary Cameron | Reuters
Loretta Mester

The U.S. Federal Reserve has now met its employment goal and is nearing its inflation goal, despite some weak recent economic data, so it should continue raising interest rates, Cleveland Fed President Loretta Mester said on Monday.

In a speech that largely reinforced her upbeat view of the U.S. economy, Mester, a hawkish Fed policymaker, said that while risks are "roughly balanced" the central bank should not delay further policy tightening until its two key mandates are fully met.

"We have met the maximum employment part of our mandate and inflation is nearing our 2 percent goal," Mester, who regains a vote on the Fed's policy committee next year under a rotation, said at the Chicago Council on Global Affairs.

"Although we live in a high-frequency world, we cannot overreact to transitory movements in incoming data," she said in prepared remarks.

The comments reinforced the expectation among most investors and Fed officials that the central bank will likely raise rates another notch in June, after having tightened twice since December, and do so yet again before year end.

Mester also repeated she would back starting the process later this year of shedding some of the $4.5 trillion in bonds in the Fed's portfolio. She largely dismissed a weak inflation reading in March and soft overall economic growth in the first quarter as one-off events.

U.S. unemployment was 4.4 percent in April.

A well-explained and slow withdrawal of the Fed from the bond market would not harm the U.S. economy, Mester.

She called for a "gradual, predictable" approach to beginning to shed some of the Fed's $4.5 trillion in Treasury and mortgage assets. "It's a natural time for us to shrink the balance sheet," Mester added.