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The Federal Reserve can afford to stand its ground on interest rates while it watches how challenges to economic growth unfold, Cleveland Fed President Loretta Mester said Tuesday.
Speaking in London, the central bank official said she holds a "positive baseline outlook" on the economy though she is monitoring risks to determine whether the Fed should cut interest rates, as the markets are currently demanding.
"At the present time, I believe it is too soon to make that determination, and I prefer to gather more information before considering a change in our monetary policy stance," Mester said, noting that the expansion has proven "resilient to a variety of shocks, headwinds and uncertainties" that ultimately have reversed.
Mester is a nonvoter this year on the policymaking Federal Open Market Committee, though she still offers input into its decisions. She has been one of the more hawkish members, meaning that she has been in favor of the move higher in interest rates over the past several years.
The market is pricing in a 100% chance of at least a quarter-point rate cut at the July 30-31 FOMC meeting and likely another 50 basis points lower before the end of the year. Investors have been worried over slowing global growth, low inflation and the impact of the U.S.-China trade battle, which Mester said has had "relatively modest" effects though the "concern is growing."
As for monetary policy, Mester said she favors a "shallow path" that involves "keeping the funds rate at current levels for a while to support a gradual rise in inflation and not overreacting to shocks that might, for a time, move inflation somewhat above 2 percent."
The overnight funds rate is currently targeted at 2.25% to 2.5%. Holding it there, Mester said, would support growth and allow inflation to move back up to the Fed's 2% goal over time.