Fed's Mester sees scope for U.S. rates to move 'a bit higher'

(Reuters) - U.S. interest rates may need move “a bit higher” if the economy performs as expected, a top U.S. Federal Reserve policymaker said on Thursday.

Federal Reserve Bank of Cleveland President Loretta Mester said she backed the central bank’s stance of keeping interest rates steady for the moment between 2.25 and 2.5 percent but that she expects a first-quarter U.S. slowdown to be “temporary.”

“Could we be done with policy rate increases this cycle,” she said in remarks prepared for delivery in Columbus, Ohio. “It is possible, but if the economy performs along the lines I think is the most likely case – with growth picking back up to, or slightly above, trend, labour markets remaining strong, and inflation staying near 2 percent – the fed funds rate may need to move a bit higher than current levels.”

Mester, who is not voting on policy this year but takes part in the deliberations, also said the Fed will be making decisions on how to transition its asset holdings to mainly Treasuries “at coming meetings.”

Several Fed policymakers have in recent days used speeches and interviews to battle a view growing in financial markets, and embraced by the Trump administration, that the central bank will need to cut rates before long.

Mester said her business contacts in the district covered by her bank, which spans Ohio as well as parts of Pennsylvania, Kentucky and West Virginia, report that business has picked up after slowing late last year. That strength could offset a slowdown she sees in Europe and China.

But uncertainty over U.S.-China trade talks could still weigh on business spending, she said.

Reporting by Trevor Hunnicutt in Columbus, Ohio; Editing by Chizu Nomiyama