PRINCETON, N.J., March 26 - The Federal Reserve should continue raising interest rates this year and next so that it can avoid an overheating that cuts short the economic expansion that is already picking up steam, a policymaker of the U.S. central bank said on Monday.
Cleveland Fed President Loretta Mester, who votes on policy this year and leans somewhat hawkish, said the central bank can speed or slow its “gradual” policy tightening if, for example, recently announced U.S. tariffs on imports lead to a trade war that hits the economy.
But Mester, who earlier this year was under consideration by the White House to be the Fed’s vice chair, sketched out a policy approach that was more aggressive in the next couple years and less aggressive in 2020 than many of her colleagues.
“If the economy evolves as I anticipate, I believe further gradual increases in interest rates will be appropriate this year and next year,” Mester said in remarks prepared for delivery at Princeton University, adding that she backed last week’s rate hike. The Fed must “avoid a build-up in risks to macroeconomic stability that could arise if the economy were allowed to overheat,” she added.
Mester, who was once a graduate student at Princeton, said U.S. tariffs on metals, planned tariffs on some Chinese imports, and the ongoing renegotiation of the North American Free Trade Agreement cloud the trade picture and pose risks to the economy.
Reporting by Jonathan Spicer Editing by Leslie Adler