Fed Shouldn’t Wait To Hike Rates, Cleveland Chief Mester Says

The Federal Reserve should still raise interest rates gradually this year given the economy's resilience, a top Fed official said on Friday, explaining she did not want to wait too long despite having supported last month's decision to stand pat.

In balanced comments that suggested she was poised to back a rate hike soon, Cleveland Fed President Loretta Mester said she did not dissent against the central bank's March policy decision due to "limited" economic data on the first quarter.

And while the Fed is not yet "behind the curve," she said, there is a risk in waiting too long to follow up on December's 0.25-percent rate hike.

"Waiting until every piece of data lines up in the correct way means waiting too long and risks having to move rates up more aggressively in the future, with negative impacts on our economy," Mester, who has a vote on Fed policy this year under a rotation, told the New York Association for Business Economics.

"The economy has shown considerable resiliency, and ... the outlook and risks around the outlook will likely support gradual reductions in the degree of accommodation this year," said Mester, seen as hawkish but pragmatic on policy.

After tightening in December for the first time in a decade, the Fed left policy unchanged two weeks ago in the face of an overseas slowdown and early-year market turmoil. The next policy meeting is set for April 26-27, followed by one June 14-15.

Mester said that, since December, she had slightly downgraded her expectations for rate hikes this year though she did not give a number. In a January interview with Reuters, she said she backed four hikes in 2016.

Recent signs of inflation and robustness in the labor market, including strong job gains in March, have encouraged Mester and a handful of her colleagues to predict more tightening is around the corner. Yet earlier this week, Fed Chair Janet Yellen pushed back with cautious comments on looming risks to the U.S. economy.

Published forecasts by Fed officials last month suggested two more rate rises were on the way this year.

Mester, one of 10 voters on policy, said she marked down her long-run expectations for economic growth and for unemployment. This year she expects between 2.25 and 2.5 percent growth in the world's largest economy.

"Despite financial market volatility, despite the pain inflicted on the energy sector from falling oil prices, and despite the relatively weak growth abroad, the U.S. economy has proven to be remarkably resilient," she said.