Loretta Mester Backed U.S. Rate Hike as A Prudent Step

Federal Reserve Bank president of Cleveland, Loretta Mester supported a more aggressive approach for rate hike. She said that the current rate hike is a prudent step. 

Loretta Mester is known for its aggressive approach. Reuters reported that although she is not opposed to her colleagues' view that the The Fed needs to raise interest rates only four times this year, but she prefers a slightly more aggressive approach.

Mrs. Mester said that she does not need to see clear evidence of inflation to back more policy tightening after an initial rate hike in mid-December. According to her in an interview with Reuters, "I'm probably a little steeper than that in the near term, just because I have a higher growth forecast."

The Fed raised interest rate for the first time in almost a decade last December. The Central bank said that further increase will be gradual based on the performance of world's economy and forecasted four times rate hike in 2016.

On the other hand, Loretta Mester is optimist to view more than four rate hike. She expected the growth of U.S. economy will be at a 2.5 percent to 2.75 percent pace this year, while her colleagues expected a lower growth at 2.4-percent rate. However while she has more aggressive view than tighter monetary policy of chairman Janet Yellen and majority at the Feds, she may not be compelled to dissent.

She said, "I think it's reasonable to move on a gradual path, and I'm going to look at the data that comes in between now and the next meeting,"

According to Bloomberg, the Feds will continue to focus on monitoring the medium-term outlook, rather than short-term swings in the economic data. This the data-dependency is shorthand for this more comprehensive process of parsing economic and financial information to determine current economic conditions.

Federal Reserve Bank implemented a tightened monetary policy for the first time in nearly a decade last month. Fed relied on new financial tools in order to increase rate. One of them is a relatively new rate on excess bank reserves, and another one was a lightly tested reverse repurchase (repo) facility to mop up some of the US$2.6 trillion in excess reserves in financial markets.

Channel News Asia reported that Stanley Fischer, the vice chairman of the Fed said the tools has been helpful for Federal Reserve to pull off its historic interest rate. "One possible concern about our unconventional policies has eased recently, as the Federal Reserve's normalization tools proved effective in raising the federal funds rate following our December meeting," he said during American Economic Association conference.

The Fed raised key interest rate last December 16 by 0.25%. Strong dollar and low oil price have been the main factor of the first rate hike in nine years.

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