Cleveland Fed President Loretta Mester said more rate hikes are still needed if the economy develops as she expected. She tweeted that “If economy performs as I expect, fed funds rate may need to move a bit higher. But if downside risks come to pass and economy is weaker than expected, I will adjust my outlook and policy views.”

However, in a speech “Perspectives on the Economic Outlook and Monetary Policy in the Coming Year”, Mester said interest rate is already “at the lower end” of the longer-run neutral rate. It’s at a level that neither stimulates nor restricts the economy, and recent rate hikes are still working themselves through the economy. In the coming meetings, Fed will also finalize the plan for ending the balance-sheet runoff and completing balance-sheet normalization.

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Mester also noted that the economy is a “very good spot”. While growth is slowing from an above-trend pace, labor markets are strong. Inflation is near 2% with no signs of appreciably rising. So, in her view “monetary policy does not appear to be far behind or far ahead of the curve”. And that gives Fed the opportunity to ” gather information on the economy and assess our forecast and the risks, before making any further adjustments in the policy rate.”

Her full speech here.


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