Cleveland Federal Reserve President Loretta Mester said on Thursday that recent data has shown that the demand side of the economy is not softening as expected and that she is expecting growth to slow significantly this year, according to Reuters.
Mester noted that she is not ready to say if the Federal Reserve (Fed) needs a bigger rate increase at the next policy meeting, but she stressed that she does not want to surprise the markets.
Regarding the rate outlook, Mester reiterated that the main focus now is on increasing rates and added that she doubts there will be a need to cut rates this year.
The market reaction to Mester’s comments was muted, with the US Dollar Index clinging to modest daily gains slightly below 104.00.
Mester’s statements come on the heels of the Fed’s recent rate cut, which saw the central bank lower the target range for the federal funds rate to 1.50-1.75%. The cut was seen as a precautionary measure to protect the US economy from the effects of the coronavirus pandemic.
The Fed has also been increasing its balance sheet by purchasing Treasury securities and mortgage-backed securities in an effort to provide liquidity to the markets and support economic growth.
The US economy has been showing signs of resilience in the face of the pandemic, with the unemployment rate dropping to 6.4% in March, down from 6.7% in February. However, the labor market is still far from full employment, and the economic recovery is expected to be slow and gradual.
Given the uncertain economic outlook, the Fed is likely to remain on hold with its monetary policy in the near term. However, the central bank will continue to monitor economic data closely and could adjust its policy stance if necessary.
In conclusion, Cleveland Fed President Loretta Mester said on Thursday that the recent data has shown that the demand side of the economy is not softening as expected, and she is expecting growth to slow appreciably this year. Mester also noted that she is not ready to say if the Fed needs a bigger rate increase at the next policy meeting, but she does not want to surprise the markets. The US Dollar Index clung to modest daily gains slightly below 104.00 following Mester’s comments, and the Fed is likely to remain on hold with its monetary policy in the near term as it monitors economic data closely.
