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5/8/2017, 3:30 PM (Source: TeleTrader)
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Fed's Mester: Rate hikes will protect from risks

The United States achieved maximum employment as defined by the mandate of the central bank, while target 2% inflation is near and expected to be reached "over the next year or so," said Loretta Mester, president of the Federal Reserve Bank of Cleveland. Speaking in Chicago on Monday, she expressed the view that further policy tightening in the form of interest rates will be needed for the economy to "help prolong the expansion, not curtail it." The upward path will help macroeconomic stability by preventing a buildup of risks, the policymaker said. Mester is an alternate member of the Federal Open Market Committee this year, without a nominal right to vote.

The head of Cleveland Fed stated she would "be comfortable" with a shift in asset reinvestment policy this year, but that clear communication in advance is essential. Reducing the balance sheet by letting securities run off would take "several years," she noted. Mester said ongoing tensions centered in North Korea and the Middle East aren't in the focus of central bankers in the US, but that the registered "downward pressure on long-term interest rates likely reflects some flight-to-quality flows."

"Although we live in a high-frequency world, we cannot overreact to transitory movements in incoming data; our policymaking has to focus on what changes in economic and financial conditions imply for the medium-run outlook and risks around the outlook," she said.

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