Fed's Mester: More rate hikes appropriate

Cleveland Federal Reserve President Loretta Mester
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Cleveland Federal Reserve President Loretta Mester

A strengthening economy will allow for more tightening of monetary policy as the year goes on, Cleveland Fed President Loretta Mester said Friday.

Even as other prominent Fed officials, including Chair Janet Yellen, recently have issued more cautionary tones, Mester said during a speech in New York that the economy is growing enough for the central bank to continue down the path of normalization.

"The policy path I foresee as appropriate today is slightly more gradual than the path I foresaw in December, partly because of the slight downward revision to my growth forecast but mainly because I now estimate a lower longer-run equilibrium interest rate. But these are small changes," she told the New York Association for Business Economics, according to prepared remarks. "The important point is that the economy has shown considerable resiliency, and in my view, the outlook and risks around the outlook will likely support gradual reductions in the degree of accommodation this year."

The remarks come just two weeks after the Federal Open Market Committee, of which Mester is a voting member, declined to raise rates. In doing so, Fed officials indicated that a policy path that once had included expectations for four hikes in 2016 now shows just two moves.

Mester's comments followed Friday's jobs report, which showed nonfarm payrolls increased by 215,000 in March, ahead of Wall Street expectations for 205,000. The report also showed wage growth at a 2.3 percent annualized pace; the Fed is looking for overall inflation at a 2 percent clip.

She pronounced the economy broadly as "sound," though she acknowledged some bumps since the December meeting, during which the FOMC hiked its rate target a quarter point for the first time in more than nine years and indicated a fairly aggressive rate hiking trajectory.

"Some parts of the economy are doing better than others," Mester said. "But the message I take from U.S. economic performance is that despite financial market volatility, despite the pain inflicted on the energy sector from falling oil prices, and despite the relatively weak growth abroad, the U.S. economy has proven to be remarkably resilient."

Though considered one of the more hawkish FOMC members, Mester voted with the majority at the March meeting. Only Esther George of Kansas City dissented.

"I think what we're seeing here is the division within the Fed between the hawks and the doves and a likelihood that we will see at the April meeting more than one dissent," Diane Swonk, DS Economics founder and CEO, told CNBC. "We could easily see two dissents at the April meeting as sort of Yellen cages those hawks and holds them back."

"She went out of her way to say I did not dissent," added Dennis Gartman, editor of "The Gartman Letter." "Clearly, she was intending to. Clearly, she was thinking about doing so. She probably shall dissent in the future. I was surprised that she made that statement and that she focused that clearly upon the fact that she did not make a dissent this time as a voter."

Mester said she understands arguments against hiking. However, she said the Fed can't wait for the perfect moment to move.

"We live with uncertainty and one could always make the case that we should wait to act until we gather more information," she said. " But waiting until every piece of data lines up in the correct way means waiting too long and risks having to move rates up more aggressively in the future, with negative impacts on our economy."

—CNBC.com's Lenore Fedow contributed to this report.