Cleveland Fed President Loretta Mester said Monday that recent trade tensions have not yet caused her to reassess her optimistic outlook on the U.S. economy.
“I am monitoring trade developments, and while I see them as a risk to the forecast, at this point they have not led me to change my outlook for the overall economy,” Mester said in a speech at Princeton University.
The Trump administration has slapped tariffs on steel and aluminum imports and has recently announced plans for tariffs on certain goods imported from China. The uncertainty from trade may not be resolved quickly, she said.
Overall, Mester backed further gradual interest-rate hikes “this year and next year.”
“We want to give inflation time to move back to goal; this argues against a steep path,” she said.
Mester said it was hard to tell how tight labor markets are. She said she cut her estimate of a neutral rate of unemployment by a quarter percentage point to 4.5% in part because of the fact that wage and price inflation have remained moderate.
Last week, the Fed hiked interest rates by a quarter percentage point, to a range between 1.5% and 1.75%, the sixth slight increase in its policy rate since December 2015. Officials laid out a plan to slowly but steadily raise rates until the funds rate reaches 3.4% in 2020.
Read: Fed sticking to cautious strategy for 2018
Mester, a voting member of the Fed’s interest-rate committee this year, forecast growth above a 2.5% rate for this year and next.
“This year is shaping up to be another good year for the economy, and the task before monetary policymakers is to calibrate policy to this healthy economy so that the expansion is sustained,” she said.
The Trump tax cut and more federal spending are expected to boost growth by half a percentage point over the next couple of years, but there is “some upside risk” that the effect could be larger, she said.
Mester said she expected to have a better read on how households are responding to the tax changes “over the next several months.”
Source : MTV
