In a speech titled “Issues for U.S. Monetary Policy“, Cleveland Fed President Loretta Mester expressed her support for further rate hike. She noted that “the medium-run outlook supports the continued gradual removal of policy accommodation; it seems the best strategy for balancing the risks to both of our policy goals and avoiding a build-up of financial stability risks.
Regarding inflation, she noted that it will take a year or two to stabilize around the 2% target. And, she added that “we want to give inflation time to move back to goal … this argues against a steep path” on tightening. But, “as the expansion continues, it could be that in order to maintain our policy goals, we may need to move the fed funds rate, for a time, a bit above the level of the funds rate that is expected to prevail over the longer run”.
She also pointed to Fed’s March economic projections that fed funds rates could move a bit above the longer-run level at 3% by 2020. She noted that “2020 is a long time away and the policy path actually followed will be responsive to changes in the outlook.
