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Volatility in financial markets as well as deflationary pressures from the plunge in energy prices shouldn't keep the U.S. central bank from raising rates, Cleveland Fed President Loretta Mester said Thursday.
Echoing themes expressed by her colleagues recently, Mester said she still sees the long-run path of inflation meeting the the Fed's goals. That's despite a harrowing bear market in oil that has caused spillover damage into the stock and bond markets as well as corporate earnings.
The Fed at its December meeting hiked its interest rate target a quarter point but declined to act again in January. Mester said she agreed with both decisions.
However, she said market participants still should expect the Fed to continue on a tightening path, albeit a slow one.
"While the actual path the fed funds rate follows will depend on the economic outlook, and thus, will be data dependent, my current view is that economic conditions will evolve in a way that will warrant rates moving up gradually over time to more normal levels," Mester said, according to prepared remarks marks she was to deliver to a Market News International gathering in New York.
She acknowledged the decline in energy prices and net exports among other weakness in the economy. However, she also noted "solid labor market indicators, including strong payroll growth and healthy growth in real disposable income" that "suggest at underlying U.S. economic fundamentals remain sound."