Central Banks

Friday, August 28, 2015 - 10:26

Clev Fed's Mester: 'Reasonably Confident' Infl Moving to 2%


JACKSON HOLE, Wyo. (MNI) - Cleveland Federal Reserve Bank President Loretta Mester said Friday she is "reasonably confident" inflation will move back towards the Fed's 2% inflation target, but she has pushed back the timeline as to when it reaches it.

"I am reasonably confident we'll get back to 2%," Mester said in an interview with Bloomberg TV on the sidelines of the Kansas City Federal Reserve Bank's annual symposium.

The policymaking Federal Open Market Committee has outlined two criteria for raising interest rates off the zero lower bound where they have been since late 2008. One is full employment, which Mester said is "pretty close," and to be reasonably confident inflation is moving back to it's 2% target.

Mester, who will vote next year on the policy-setting Federal Open Market Committee, said in her mind, that goal has been achieved.

"I am reasonably confident because when you look at the factors figuring into the inflation forecasts, inflation expectations have been reasonably stable," she said. "We have growth - above-trend growth. We have labor markets improvement continuing."

Mester pointed out the economy has had some shocks lately, including the drop in oil prices and other commodity prices and the appreciation of the dollar, "which are deflationary or disinflation factors."

But those are transitory factors, she said adding policymakers have to look further into the future.

"In general," she added, "because the economy is doing better, above trend, I'm reasonably confident we're going to get back to 2%."

Because of the transitory factors, Mester said she pushed out the timeline for when inflation actually reaches the 2% inflation target to later than the end of next year or early 2017, where she was in her last forecast. The FOMC will submit new outlooks for the Summary of Economic Projections when it meets again in September.

As for whether September is the time for liftoff, Mester said "I'm in the mode now of looking at all the data," including the volatility in the financial markets.

Mester, in an interview earlier Friday, told the Wall Street Journal the recent market turmoil "hasn't so far changed my basic outlook that the U.S. economy is solid and it could support an increase in interest rates."

Yet Mester said, "I want to take the time I have between now and the September meeting to evaluate all the economic information that's come in, including recent volatility in markets and the reasons behind that."

--MNI Washington Bureau;tel: +1 202 371-2121; email: karen.mracek@mni-news.com

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