Federal Reserve Bank of Cleveland President Loretta Mester said Friday she is not yet willing to rule out supporting a rise in rates at central bank’s June policy meeting despite data showing a very weak start to growth in 2015.
When it comes to boosting rates off their current near zero levels, “all meetings are on the table,” Ms. Mester told reporters after a speech held at the Federal Reserve Bank of Philadelphia. “I’m going to be data dependent, I’m going to look at the data, and go into each meeting with an assessment of the data that comes in. So I’m not taking any of the meetings off the table.”
Ms. Mester is the first official to speak publicly since this week’s gathering of the monetary-policy setting Federal Open Market Committee. Officials held interest rates steady then amid rising concern about the economy after data showed negligible levels of growth in the first quarter. The economy’s performance is raising questions about the ability of the Fed to boost rates off of near-zero levels this year, as many central bankers would like to see.
Market expectations of the first rate rise have been moving steadily later into the year in reaction to the data. A number of key officials have also shown less confidence about the timing of the increase. In recent remarks Ms. Mester had signaled an openness to raising rates over the first half of the year, which pointed to the Fed’s mid-June policy meeting as a time the institution could act.
In her comments to reporters, Ms. Mester kept that expectation in play. She signaled that while data over the first quarter was indeed a “disappointment,” it remains to be seen whether the weakness will prove enduring. “It’s too early” to be sure the second quarter has already run into trouble, she said.
“We have quite a bit of data coming out between now and the June meeting, and I’m going to be particularly attentive to that data,” especially when it comes to job market numbers, Ms. Mester said. “I can be agnostic at this point and just wait for the data to come in,” and then decide on what the right policy for rates will be, she said.
For now, “I think policy is appropriate, but we are getting close to the point” where rates will need to move higher, Ms. Mester said.
In her speech, the official said brighter household finances are providing notable support to the U.S. economy. “The improvement in households’ balance sheets is one of the important fundamentals underlying the outlook for continued expansion, further improvement in labor markets, and inflation gradually moving back to the Federal Reserve’s 2% target over the medium term,” Ms. Mester said.
The official observed that while household debt has been rising, she sees few problems with this. She noted “household debt relative to disposable personal income has fallen to around 100% and is near its longer-run trend,” she said.
The bulk of Ms. Mester’s speech was devoted to issues involving research into consumer credit issues. She said more work needs to be done to properly understand the linkages between household finance and the broader economy.
The official said that while the Fed is doing work to bolster its powers to deal with financial sector imbalances, uncertainty remains. She said tools like stress tests, capital requirements and other so-called macroprudential tools that address imbalances outside of traditional interest rate policy “show promise” but are as yet “largely untested.”
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