The Federal Reserve should remain increasing rates this year until 2019, so that it can prevent overheating the cuts short economic expansion that is already picking up steam, according to a policymaker of the U.S. central bank.
Loretta Mester, President of Federal Reserve in Cleveland, stated that the central bank could hurry or slow its “gradual” policy tightening if the recent announced U.S. tariffs on imports leas to a trade war that hits the economy.
Mester is one of the Fed policymakers who voted unanimously to increase rates by a quarter of a percentage point.
“If the economy evolves as I anticipate, I believe further gradual increases in interest rates will be appropriate this year and next year,” stated Mester.
“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 also outlined a policy approach that looked a bit more aggressive than many of her colleagues.
The central bank lifted its policy path last week as it agrees to the large tax cuts and government spending. It also expects that the inflation should increase above 2 percent target after years below it.
Meanwhile, Mester planned tariffs on some of the Chinese imports and the current renegotiation of the North American Free Trade Agreement, which smudged the trade picture and cause risks to the economy.
Head of New York Fed Says Regulators Should Focus on Bank Executives
William Dudley, the outgoing head of New York Fed, stated on Monday that regulators should encourage banks to refurbish their corporate cultures to lessen risk and bad behavior.
“If you have a good culture, you’d say, ‘I could do this, but it’s misleading, it’s unethical and therefore it’s inappropriate,” stated Dudley.
Dudley, who is planning to step down later this year, has defended the post-crisis regulatory regime. He also gave authority to the push from the Trump administration to ease rules in an effort to spur economic growth.
The changes under the consideration at the Fed, such as simplifying the “Volcker Rule” on bank trading, are “common sense,” according to Dudley.
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