Cleveland Fed’s Mester backs multiple rate increases this year

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Loretta Mester, the president of the Federal Reserve Bank of Cleveland, is the latest Fed official to come out in favour of multiple increases to short-term interest rates this year.

In a speech Thursday at the 10th Annual Risk Conference hosted by the Chicago Fed and DePaul University, Ms Mester — who serves this year as an alternate voting member on the rate-setting Federal Open Market Committee — said that while she would not go as far as supporting a rate rise at all of the Fed’s meetings this year, she is supportive of “more than the one-increase-per-year seen in the past two years.”

This upward policy path will help prolong the expansion, not curtail it. It will help avoid a build-up of risks to macroeconomic stability that could arise if the economy is allowed to overheat, as well as risks to financial stability if interest rates remain too low and encourage investors to take on excessively risky investments in a search for yield.

According to her prepared remarks, Ms Mester said she believed underlying fundamentals of US economic expansion, including unemployment and inflation, are “sound”.

Over the past two weeks, a number of Fed officials have voiced their support of one or more additional rate increases this year, beyond the 25-basis point rise the central bank approved at its mid-March meeting. The Fed previously signalled it is targetting as many as three rate increases in total for 2017.

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