Upward tilt on US rates ‘still appropriate’: Fed’s Mester

Federal Reserve policy maker Loretta Mester says the bank mustn’t overstay its welcome at zero rates.

Ms Mester said it was important that the Fed does not “overstay its welcome” at zero rates. Picture: Britta Campion / The Australian.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on Tuesday that she remains upbeat over the US jobs market, adding that a gradual “upward tilt” in interest rates remains appropriate.

“I’m positive about the US labour market,” Ms Mester said, speaking at a conference on financial sector stability. “Significant progress” had been made on achieving the Fed’s employment mandate, she added.

Ms Mester said she remained confident that the Fed was not “behind the curve” on tightening policy. She said the timing of interest rate increases would be determined by the evolution of the economy and the risks surrounding the medium term outlook.

Ms Mester’s comments follow last week’s release of June US employment data showing job creation running much faster-than-expected, an outcome that has lifted sentiment in markets. The reading followed a tepid May result.

“I do think that a gradual upward tilt [in interest rates] is appropriate for the US economy,” she said.

Asked if an interest rate increase was likely in the second half of this year, she declined to forecast any timing of a potential move.

“I can’t tell you any particular time frame, when we are going to be assessing those things to happen,” she said.

In commenting on financial stability risks, Ms Mester said it was important that the Fed does not “overstay its welcome” at zero rates.

Recent inflation data has also been encouraging and consistent with the Fed’s expectation that on-year inflation will gradually move back up to 2 per cent, she said.

The interest-rate setting Federal Open Market Committee, of which Ms Mester is a voting member, kept its short-term interest rate target range steady last month at 0.25 per cent to 0.50 per cent in reaction to mixed economic data.

- Dow Jones newswires