Cleveland Fed President Loretta Mester Discusses Inflation and Monetary Policy

According to Yahoo News, Cleveland Federal Reserve President Loretta Mester stated that easing inflation pressures have provided the U.S. central bank with time to determine its next move in monetary policy. In a speech prepared for a conference on financial issues in Chicago, Mester said that while inflation is still above the Fed's 2 percent goal, there has been noticeable progress even as the overall economy remains relatively strong. Mester believes that it will likely take time to reach the Fed's inflation target, but in the meantime, monetary policy is in a good position for policymakers to assess incoming information on the economy and financial conditions. She emphasized that the central bank's rate policy will need to be nimble and that the current level of the federal funds rate allows for this. While Mester did not rule out the possibility of more rate hikes, she stated that the prospect of additional increases and the duration of the central bank's rate target will depend on the economy's evolution, changes in risks, and progress made on the Fed's dual mandate goals of price stability and maximum employment. Mester's comments come two weeks before the Fed's Dec. 12-13 policy meeting, which is widely expected to result in no change in the current 5.25%-5.50% policy rate range. Mester also discussed financial stability concerns, calling for regulators to take action to increase the resiliency of financial firms by bolstering banks' capital buffers and implementing oversight that focuses on the market value of banks' balance sheets rather than their book value. She also suggested that Fed stress testing of banks should be redesigned to make them a more effective countercyclical capital tool, allowing banks to build up their capital buffers when they are better able to do so.