The Federal Reserve should continue its gradual approach to raising interest rates given that inflation has not yet reached the U.S. central bank’s 2 percent goal in a sustained way, Cleveland Fed President Loretta Mester said on Monday.
“In my view, 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,” Mester said in prepared remarks for a speech in Paris.
Mester said she does not expect inflation to pick up sharply, adding that while it is close to the Fed’s symmetric 2 percent target, it will only reach that level on a sustainable basis over the next one to two years.
“We want to give inflation time to move back to goal … this argues against a steep path,” she said.
The Fed unanimously decided to raise borrowing costs at its policy meeting in March. It forecasts another two rate rises for this year, although an increasing number of policymakers see three as a possibility.
Policymakers raised rates three times last year. The Fed’s benchmark overnight lending rate now sits in a target range of 1.50 percent to 1.75 percent.
The Fed’s preferred measure of inflation increased to 1.9 percent in the 12 months through March, effectively bringing price gains to the central bank’s 2 percent target after undershooting that goal in recent years.
Mester, who has a vote on monetary policy this year under a rotation system, also said the central bank could raise rates more rapidly if the U.S. economy grew faster than expected, though she added it could go slower if inflation weakens again.
Her views are consistent with the Fed’s policy statement earlier this month. It emphasized that policymakers do not see their 2 percent inflation target as a ceiling, and will not be unduly concerned with price gains above it for a time.
Mester also used her speech to a central banking conference to once again reiterate her stance that the central bank should begin to analyze whether its inflation framework is fit for the future.
“Now is the time to assess whether changes to our current framework could make monetary policy more effective in achieving our goals,” she said.
Several others on the Fed’s rate-setting committee have also called for a review this year on whether to stick to the current inflation policy, but Fed Chairman Jerome Powell has yet to publicly show support for such a move.
Investors have fully priced in a rate rise at the Fed’s next policy meeting on June 12-13.
more recommended stories
Sanctions are ‘ridiculous’, companies still investing in Russia
The U.S. Treasury in April announced.
US new home sales fall less than expected in April
Sales of new U.S. single-family homes.
Five things that could move the markets in the Fed’s minutes release today
The Federal Reserve will release minutes.
Americans face high gas prices, crowded roads this Memorial Day
If you plan to hit the.
Trump’s China negotiators like the guys from ‘Dog Day Afternoon’
The Trump Administration’s economic policies remind.
Malaysia’s Mahathir Mohamad says national debt is 65 percent of GDP
Rustam Azmi | Getty Images The.
Public sector assets saw a record $2.5 trillion surge in value last year
A global economic upswing helped the.
VTB says it has stopped lending to sanctioned oligarch
Russia’s second-largest bank said it has.
US hikes tariffs on Chinese steel exported via Vietnam
Aaron Josefczyk | Reuters A worker.
Trumpâs trade mantra is âspeak loudly and wave your stick around,â says investment chief
Donald Trump’s approach to foreign relations.