Fed doesn't want to surprise market on policy, Mester says

[WASHINGTON] Federal Reserve Bank of Cleveland President Loretta Mester said policy makers don't want to surprise the market on interest rates and they have to be "nimble" to adjust their outlook amid global and domestic risks.

"We certainly never want to surprise the markets," Ms Mester said Wednesday in an interview from Singapore with Bloomberg Television's Haidi Lun.

"But I think most people, when they're thinking about the US economy, see it on a pretty good and sound footing."

Investor expectations for an interest-rate increase at the Fed's next policy meeting rose after Chair Janet Yellen indicated Feb 14 that she foresees additional tightening this year regardless of whether President Donald Trump follows through on plans to pursue pro-growth fiscal measures. Policy makers gather March 14-15 in Washington.

"We'll just have to see how the economy plays out and assess the package when we get more details," Ms Mester said.

"We have to be nimble about it in terms of being willing to change our policy path if we think that the economy is evolving differently than we anticipate."

Global risks and uncertainty in the US means the Fed may adjust its forecasts more frequently, Ms Mester said.

"In a particular environment like this, we might see more changes in our forecasts and associated policy paths than we might have seen over the past couple of years," she said.

"But I think that's good, we want policy to take into account these changes."

Inflation Pressure

Ms Mester reiterated comments made on Feb 20 that she would be "comfortable" with higher rates in response to rising price pressures, though she said the Fed was not yet "behind the curve" in addressing inflation.

The Fed's preferred gauge of inflation jumped to 1.6 per cent in the 12 months through December, up from 1.4 per cent in the year through November, though it remains below the Fed's target of 2 per cent. Excluding food and energy components, inflation was almost unchanged at 1.7 per cent.

Wages have risen only modestly in recent months despite continued strong gains in the labor market where employers have added about 1.1 million jobs in the past six months, with unemployment already below 5 per cent.

Ms Mester was among Fed officials who pushed for higher rates through much of the second half of 2016. She dissented from majority votes twice last year, in September and November, when the Federal Open Market Committee held rates steady.

The panel voted unanimously in December to raise the target range for the federal funds rate to 0.5 per cent to 0.75 per cent. Ms Mester does not vote this year.

BLOOMBERG