Fed's Mester: Rate hike now would prolong the expansion

11/30, 6:56 PM (Source: TeleTrader.com)

Even though the United States Federal Reserve has not yet fallen behind the curve, an increase in federal funds rate at the bank's December meeting would be appropriate, the president of Cleveland Fed Loretta Mester said on Wednesday. She added that she would support such a move as it would prolong and not curtail the economic expansion.

Speaking at the African American Chamber of Commerce of Western Pennsylvania, the rate-setter explained that the monetary policy normally affects the economy with "long and variable lags." For that reason, she continued, policy actions have to be undertaken before the policy objectives of full employment and price stability are met in order to avoid a potential recession. Otherwise, in an environment of an unsustainably tight labor market and excessive price pressures, this would harm the more vulnerable parts of the American society by a greater degree, Mester insisted.

The market-assigned probability that the Fed will raise the policy rate in December climbed to 98.6% from yesterday's 91.7%, data from the CME Group showed.

Teletrader Newsroom / IB