Central bank not behind the curve on interest rates, Fed's Mester says

The head of the Federal Reserve bank of Cleveland took issue at the start of the week with those market observers who argued that the central bank was either "far behind or far ahead of the curve".

In remarks prepared for a speech at The 50 Club, in Cleveland, on Monday evening, Loretta Mester said it was an ideal moment to continue to gather information on the economy, in order to assess the Fed's forecasts and the risks to the outlook before making any new adjustments in the official short-term interest rates.

Should her forecasts be borne out, then the so-called Fed funds rate would most likely need "to move a bit higher than current levels".

But if some of the downside risks materialised, putting the central bank's goals of stable inflation and full employment at risk, then she would need to adjust her outlook and policy views.

For Mester, the economy was "in a very good spot", as the expansion slowed from an above-trend pace alongside a "strong" jobs market.

The key to keeping inflation 'under wraps' was Americans' inflation expectations, which were offsetting the tight jobs market, the "strength" in the economy and reports from business contacts that they have "more pricing power now than they have had in many years".

"Going forward, with appropriate adjustments in monetary policy that maintain stable inflation expectations, my outlook is that inflation will remain near our symmetric 2 percent goal," she said.

On the outlook for growth, the policymaker believed the most likely outcome was continued expansion in 2019, albeit amid a slowdown to a "more sustainable pace, at or slightly above trend".

"But the move may not be a smooth one and there is uncertainty around the forecast. Slowing global growth, uncertainty over trade policy, tighter financial conditions, and the downturn in sentiment pose risks to this forecast and bear watching."