Fed's Mester: Markets remained 'relatively liquid'

Economy 2/13/2018, 2:35 PM
Fed's Mester: Markets remained 'relatively liquid'

Loretta Mester, president of the Federal Reserve Bank of Cleveland, told participants at an event in Dayton, Ohio, that the economy's underlying fundamentals are "very sound" and that an "episode of market turbulence" is "far away from... scenario" of a spillover. "In the near term, we look at whether the market swing is accompanied by disorderly trading, a lack of liquidity, or contagion to other markets. We have not seen this: trading has been relatively orderly, markets have remained generally liquid, and there hasn’t been a pullback in credit," she added in written remarks, but also warned "a more persistent drop could dash confidence."

The policymaker asserted inflation should gradually reach target 2% within one or two years, while that the economy is expected to expand above the 2% trend. Turning to the current push for normalization, Mester said she supports a pace of interest rate increases like last year (three quarter-point hikes in total) for 2018 and next year.

The tax reform should add 0.25 to 0.5 percentage points to growth "over the next couple of years, but based on the positive reactions so far, there’s an upside risk that the effect could be larger," she concluded.

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