Cleveland Fed’s Mester says the Italian turmoil and a flattening yield curve haven’t changed her interest-rate view

Regional Fed president tells MarketWatch she continues to see myriad reasons to keep lifting U.S. interest rates
Bloomberg Loretta Mester, president of the Federal Reserve Bank of Cleveland, spoke to MarketWatch in an exclusive interview.

The market may have encountered a fresh round of turmoil, but Cleveland Fed President Loretta Mester’s message on the U.S. economy and how many interest-rate hikes are needed has stayed just as it was. “Whether it’s three or four, I know the markets want to know exactly that, but in terms of the economy and the macroeconomy, I think that is less important. I think the important thing is we need to be moving the funds rate up gradually because the economy is improving, and we’re getting at our goals,” Mester said in an exclusive interview with MarketWatch from her elegant office in Cleveland.  Neither worries about contagion effects from the turmoil in Italy or a flattening yield curve has persuaded Mester to rethink her support for gradual rate hikes. Mester threw cold water on the idea that wages are somehow mysteriously low. The fact is that worker compensation is rising and soon will be reflected in the statistics, she said. In a wide-ranging interview, Mester, who is a voting member of the Fed’s policy committee this year, said she didn’t think inflation would spike. She said she could tolerate “a couple” of inflation readings above 2%. She stressed that the data would dictate the path of policy, and the impact of the Trump tax cut and congressional spending package would be much clearer later this year.