Speaking in Pittsburgh
She adds:
- Further gradual rate hikes needed
- Favors a beginning to trim Fed's balance sheet in near term
- Expects 2% GDP for the next year
- Expects inflation to return to 2% target over the next year or so
- Inflation to stay below 2% for "somewhat longer"
- Won't see strong wage growth unless productivity better
- Weak inflation is problematic if it erodes expectations
- Some recent inflation weakness reflects special factors
- Expect unemployment rate to stay below 4.75%
- Attributes slow wage growth more to slow productivity growth than slack in labor market
- Strengthening business investment,activity is an encouraging sign
- Hurricane in Gulf will likely dampen growth in current quarter but add growth in subsequent quarters.
Mester's comments are in line with her bias. Whereas some Fed officials (Kashkari, Brainard) have expressed the view that the Fed has room to sit still until inflation rises, Mester is taking the view that it is coming and the Fed has to be more preemptive.
US yields -which may be getting a safe haven bid too - is not voting for higher inflation. The 10 year yield is at the lowest level in 2017 at 2.05%. It traded up to 2.62% in March (high for the year).
