The President of the Cleveland Federal Reserve, Loretta Mester, cautions the central bank’s policy on rate hikes, according to a report by CNBC.
One of the Federal Reserve’s mandates is to keep inflation hovering around the 2 percent mark—it is currently sitting at 1.4 percent, just below their goal. As a result, the Fed has been hesitant to raise interest rates, but Mester believes this to be a mistake, due to the fact that low inflation might delay purchases and increase debt.
According the Mester in prepared remarks published on the Cleveland Federal Reserve’s website, monetary policy “takes some time … to work itself through the economy, we can’t wait until these policy goals are fully met to act. We need to assess what incoming information is telling us about where the economy is going over the medium run, and the risks around that medium-run outlook, and set policy appropriately.”
Mester however does agree with the central bank’s viewpoint that the economy is normalizing, but she did issue a word of advice on the proper course to take concerning monetary policy.
“Policy needs to remain systematic in how it reacts to incoming information relevant to the outlook, but not be dogmatic should the outlook indeed materially change.”
In terms of the overall economic outlook, Mester links oil prices and the “modest” depreciation of the dollar in the beginning of 2017 to increased manufacturing, adding “business sentiment remains at high levels and supportive of continued spending, but some of my business contacts report that mounting political and fiscal policy uncertainty has begun to temper some of that optimism.”
You can read her full statement here.