Fed’s Mester says U.S. economy is still healthy
The U.S. economy is still healthy, says Cleveland Federal Reserve President Loretta Mester.
Translation: Don’t rule out interest rate increases in 2016.
Hardly anyone thinks the Fed will raise rates at its next meeting in March.
Stock markets have tanked since January 1 as investors worry about China’s slowdown, plummeting oil prices and the strong dollar.
“At this point, I view them as posing some risk to the outlook, but I believe it is premature to materially change my modal outlook,” Mester said at a Market News International conference in New York Thursday evening.
She used the word “premature” several times during her remarks.
Mester is one of many Fed members speaking out to try to calm markets and clarify the central bank’s thinking in an increasingly turbulent world.
The market now predicts no increases at all in 2016, but the Fed’s own estimates indicate four hikes. It’s a big disconnect.
“Underlying U.S. economic fundamentals remain sound,” said Mester, a voting member of the Fed’s committee that sets interest rates. “We’re looking at medium-term outlook, [the market] may be looking at the short-term.”
While she acknowledges that a “steeper, more persistent” drop in the stock markets could lead to a bigger pullback, she sees that as a slim possibility.
The market also tanked in late August and September before rebounding.
“My expectation is that the U.S. economy will work through the latest episode of market turbulence and soft patch to regain its footing for moderate growth,” she said.
