Federal Reserve Bank Argues In Favor of Increase in Interest Rates
On Friday, 13th November, a FED policy maker commented on how the time of interest rates hike in the USA is approaching fast and that the Federal Reserve needs to stop fearing about the risk of adverse reaction from the market or any uncertainty regarding the economic trends that may arise in the long term.
Loretta Mester, the president and CEO of the Cleveland Reserve Bank, will soon be a voter on the FED rate setting committee in 2016. She mentioned that the labor market in America seems to be in full strength; therefore, she said job creation would do well with slowing down otherwise it may end up unleashing inflation.
At the City Club of Cleveland, Mester came prepared with comments on the topic and further acknowledged that the Fed is meant to battle the threat of U.S. economy growth without witnessing high levels of inflation. She also acknowledged that that argument had nothing to do with the delay on increasing interest rates.
If the Fed waits too long to raise the rates, this could easily allow inflation to take hold and may force it to in turn tighten policy uncompromisingly in order to fight it, according to Mester. To prove that we can take a gradual approach to this, we need to begin by normalizing the interest rate policy, she said.
The CEO also emphasized that she forecasted inflation to rise slowly and that too by only 2 percent till 2017. She mentioned this to reporters after her speech on Friday. A sharp increase in interest rates will throw it all off and will lead to a faster rate in increase of prices.
The Fed is keeping close tabs on the global slowdown that the United States suffered from its exporters that led to a downward pressure on the prices. Mester said that consumer spending can be solid and the economy should be able to heat up in the following year.
The Fed proved themselves right to have adopted this monetary policy back in 2007-09 era so as to battle the recession. However, the way history judges extraordinary actions will always depend on our demonstration whether there is a way out or not. According to Mester, the time to begin said demonstration is approaching.
