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CNBC Exclusive: CNBC Transcript: Federal Reserve Bank of Cleveland President Loretta Mester Speaks with CNBC's Steve Liesman on "Power Lunch" Today

WHEN: Today, Thursday, February 26th

WHERE: CNBC's "Power Lunch"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of Cleveland President Loretta Mester with CNBC's Steve Liesman on "Power Lunch" (M-F, 1PM-3PM ET) today. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000356423.

All references must be sourced to CNBC.

STEVE LIESMAN: I'M SITTING HERE IN NEW YORK CITY WITH CLEVELAND FEDERAL RESERVE PRESIDENT LORETTA MESTER, AND, BOY, THERE'S A LOT TO TALK ABOUT. THANKS FOR JOINING US.

LORETTA MESTER: THANKS FOR HAVING ME.

LIESMAN: I WANT TO BEGIN WITH WHAT HAPPENED YESTERDAY. THE HEARING ON THE HILL, A LOT OF PEOPLE SAID IT WAS ABOUT AS PARTISAN AS THEY'VE EVER SEEN. WHAT IS YOUR REACTION TO IT?

MESTER: SO I WISH WE WERE ALL AS POISED AS JANET YELLEN WAS YESTERDAY AT THE HEARING. WE HAVE HAD SOME QUESTIONS ABOUT OUR TRANSPARENCY, BUT AS YOU KNOW, THE FED HAS BEEN WORKING ON TRANSPARENCY AND COMMUNICATION OVER THE YEARS. QUESTIONS COME UP ABOUT OUR POLICIES. I AM CERTAINLY ONE WHO THINKS THAT THE FED IS ACCOUNTABLE TO CONGRESS AND THE AMERICAN PUBLIC, AND I THINK WE'VE BEHAVED IN A MANNER THAT SHOWS THAT WE ARE. CAN WE IMPROVE OUR COMMUNICATIONS? SURE. BUT AUDIT THE FED, THE BILL THAT THEY WERE TALKING ABOUT, THAT IS BEING TALKED ABOUT, I THINK IT IS MISNAMED AND IT'S ALSO MISGUIDED BECAUSE IT'S NOT REALLY ABOUT AUDITING THE FED. THE FED IS AUDITED. AND I THINK JANET BROUGHT UP THE FINANCIALS TO SHOW. YOU KNOW, WE ARE AUDITED. OUR FINANCIALS STATEMENTS ARE AUDITED. IT'S REALLY ABOUT HAVING POLITICAL INTEREST INFILTRATE THE DECISIONS ON A SHORT RUN BASIS.

LIESMAN: DO YOU THINK THOSE QUESTIONS WERE APPROPRIATE? ESPECIALLY QUESTIONING AND SUGGESTING THAT IT'S POLITICAL THAT THE FED CHAIR IS MEETING WITH THE TREASURY SECRETARY?

MESTER: I THINK FED CHAIRS OVER TIME HAVE MET WITH THE TREASURY SECRETARY, AND I THINK THAT'S VERY APPROPRIATE. I THINK IT'S ALSO APPROPRIATE FOR CONGRESS TO ASK THE FED CHAIR WHATEVER THEY WANT TO ASK. I THINK HER RESPONSE WAS THE RIGHT ONE IN THAT, YOU KNOW, WE WANT TO HAVE A DIALOGUE, RIGHT, WITH THE TREASURY SECRETARY. BUT THAT DOESN'T MEAN THAT RIGHT POLITICAL INFLUENCING IS INFLUENCING HER DECISIONS ON POLICY. SHE'S A VERY THOUGHTFUL MONETARY POLICYMAKER.

LIESMAN: DO YOU HAVE CONCERNS AT THIS POINT WHEN YOU SEE HOW POLITICAL THE FED HAS BECOME? DO YOU THINK THAT'S GOING TO EFFECT POLICY?

MESTER: I DON'T THINK THE FED HAS BECOME POLITICAL. I THINK WE ARE GOING TO –

LIESMAN: I MEAN IN THE SENSE THAT IT SEEMS TO BE IN THE POLITICAL ARENA RIGHT NOW AND IS SERIOUSLY DISCUSSED.

MESTER: NO, I THINK WE ARE GOING TO FOCUS ON THE ECONOMIC DEVELOPMENTS. WE ARE GOING TO FOCUS ON SETTING THE BEST MONETARY POLICY THAT WE CAN TO FURTHER OUR DUAL MANDATE THAT IS GIVEN TO US BY CONGRESS. I THINK IT CAN BE A DISTRACTION. IN FACT, YOU KNOW, SOME OF THE HEARING WAS ABOUT THAT RATHER THAN ECONOMIC CONDITIONS, BUT WE ARE GOING TO SET POLICY BASED ON THE BEST POLICY FOR THE COUNTRY IN TERMS OF ECONOMICS.

LIESMAN: LET'S TURN TO POLICY. IN YOUR OPINION SHOULD THE WORD PATIENT COME OUT OF THE STATEMENT WHICH SIGNALS TO INVESTORS AND TO THE PUBLIC THAT A RATE RISE IS AT LEAST TWO MEETINGS AWAY?

MESTER: SO, I GUESS I'M IN FAVOR OF MAKING SURE THAT JUNE IS ON THE TABLE AS A VIABLE OPTION. IN MY VIEW, AND I THINK THE CHAIR EXPLAINED THIS QUITE WELL IN HER TESTIMONY, TAKING PATIENT OUT DOES NOT NECESSARILY MEAN THAT A RATE RISE WILL NECESSARILY COME IN JUNE. RIGHT? WHAT IT MEANS IS THAT JUNE BECOMES A VIABLE OPTION THAT WE ARE GOING TO START LOOKING AT ANY MEETING, RIGHT, WE ARE GOING TO GO INTO THE MEETING WITH THAT BEING A POSSIBILITY. RIGHT NOW, PATIENT IS DEFINED AS NO GREAT RISE FOR TWO MEETINGS.

LIESMAN: SO LET'S SAY YOU GET THAT VIABILITY, LET'S SAY YOU GET THAT FLEXIBILITY OR OPTIONALTY IS THE TERM YOU GUYS LIKE TO USE.

MESTER: RIGHT.

LIESMAN: WOULD YOU, IF YOU VOTED NOW, THINK ABOUT WHAT JUNE IS GOING TO LOOK LIKE, WOULD YOU VOTE TO RAISE RATES IN JUNE?

MESTER: SO I CAN'T TELL YOU THAT BECAUSE WE ARE GOING TO BE ASSESSING THE DATA AS IT COMES IN, IN THE SPRING AS WE GET TOWARDS THE SUMMER, RIGHT? WE ARE DATA DEPENDENT IN THE SENSE OF WE LOOK AT INCOMING ECONOMIC DATA, SEE HOW IT EFFECTS OUR OUTLOOK, AND THEN SET POLICY BASED ON THAT. SO I CAN'T TELL YOU TODAY WHAT I WILL OR WILL NOT SUPPORT IN JUNE BECAUSE I WANT TO SEE THE DATA THAT COMES IN OVER THAT TIME. I CAN TELL YOU THAT MY OUTLOOK IS THAT THE ECONOMY ACTUALLY IS PICKING UP MOMENTUM. WE'VE HAD SOME VERY STRONG LABOR MARKET REPORTS OVER THE LAST, YOU KNOW, SIX MONTHS EVEN. INFLATION'S BELOW OUR GOAL, BUT THE REPORT THIS MORNING ABOUT WHAT WAS GOING IN THE CPI WASN'T A SURPRISE, TOTAL CPI BEING LOW, BUT CORE CPI STABILIZING. SO MY FORECAST IS FOR INFLATION TO GO BACK UP TO 2 % BY THE END OF NEXT YEAR.

LIESMAN: WE HAVE TO GO. JUST GIVE US YOUR NUMBER FOR GDP THIS YEAR.

MESTER: 3%.

LIESMAN: 3%. VERY GOOD. AND YOU ARE GOING TO STICK AROUND. WE ARE GOING TO DO SOMETHING FOR THE WEB THAT IS GOING TO BE RIGHT ON THERE.

MESTER: SURE.

LIESMAN: LET ME TOSS IT BACK TO YOU, BRIAN SULLIVAN. BACK IN E.C.

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