July 2 (Reuters) - The Federal Reserve should not cut rates until it has more information about whether the U.S. economy is moving to a truly weaker path, Cleveland Federal Reserve Bank President Loretta Mester said on Tuesday.
“I prefer to gather more information before considering a change in our monetary policy stance,” she said in a speech prepared for delivery in London that answers some colleagues of hers who are arguing for a rate cut. Markets also widely expect the central bank’s next move will be a cut in light of weaker inflation and uncertainties including a U.S.-China trade skirmish.
“It is not clear how effective this policy would be,” Mester said. “Cutting rates at this juncture could reinforce negative sentiment about a deterioration in the outlook even if this is not the baseline view, and could encourage financial imbalances given the current level of interest rates, which would be counterproductive.”
She said “a few” weak job reports, further declines in factory activity, weaker business spending and falling inflation expectations could build a stronger case that the U.S. is moving to a “weak-growth scenario” that could require more stimulus.
In the meantime, the U.S. economy “has proven itself resilient to a variety of economic shocks, headwinds, and uncertainties,” and that structural forces the Fed does not control could be holding back inflation. (Reporting by Trevor Hunnicutt in New York Editing by Chizu Nomiyama)