Cleveland Federal Reserve Bank President and CEO Loretta Mester gives her keynote address at the 2014 Financial Stability Conference in Washington December 5, 2014. REUTERS/Gary Cameron
November 13, 2015
By Jason Lange
CLEVELAND (Reuters) – The time to hike U.S. interest rates is “quickly approaching” and the Federal Reserve should not delay for fear of an adverse market reaction or uncertainty over long-run economic trends, a Fed policymaker said on Friday.
Cleveland Fed President Loretta Mester, who is not a voter on the Fed’s rate-setting committee this year but will be in 2016, said America’s labor market appears near full strength and job creation needs to slow to keep the unemployment rate from falling much further and unleashing inflation.
She acknowledged “considerable uncertainty” over how much the U.S. economy can grow without generating high levels of inflation that the Fed is tasked with fighting. But that “is not an argument to delay taking the first step” in raising rates, Mester said in prepared remarks to The City Club of Cleveland.
Waiting too long to raise rates could allow inflation to take hold, forcing the Fed to tighten policy aggressively to combat it, Mester said. “Starting the process to normalize interest rates will help ensure that we can, indeed, take a gradual approach,” she said.
While the Fed will keep a close eye on the global economic slowdown that has hit U.S. exporters and has put downward pressure on prices, Mester added that consumer spending has been solid and the economy should continue to heat up next year.
The Fed was right to adopt extraordinary monetary policy to battle the deep 2007-2009 recession, she said. But “how history judges those extraordinary actions will depend on our demonstrating that there is a way out. The time to start that demonstration is quickly approaching,” Mester added.
(Reporting by Jason Lange in Cleveland; Additional reporting by Jonathan Spicer in New York; Editing by Andrea Ricci)