By Laurie Laird
LONDON (MaceNews) – While U.S. growth appears to have weakened over the second quarter, the current slowdown is insufficient to trigger a reduction in interest rates, according to Cleveland Federal Reserve President Loretta Mester.
“Given the current level of the funds rate and my current baseline outlook,” interest rates represent an “appropriate balance in our dual mandate roles” of maintaining price stability and full employment, said Mester, addressing a European Union-sponsored conference in London. However, Mester is not a voting member of the Federal Open Market Committee in 2019 and stressed that that her comments were made in a personal capacity.
Views of the path of interest rates “vary on the FOMC,” she added, acknowledging that uncertainties over the global trade outlook create a degree of risk in generating economic forecasts. However, the direct effect of tariffs imposed on Chinese imports has been “relatively modest” so far. “The imposition of tariffs creates deadweight losses. New suppliers are not as efficient as old ones.”
But consumer spending likely gathered steam in the second quarter, following government-shutdown-related softening at the start of the year, and employment growth remains robust, meaning the “most likely outcome is that [the economy] will maintain its good performance in 2019.
Business investment has been weaker than Mester expected, particularly in light of “favorable earnings” and a corporate tax cut. But she would be unlikely to change her outlook in the absence of a “few more weak jobs reports” or further “weakness in manufacturing.” Analysts expect the June non-farm payroll report, due on Friday, to show a pick-up in jobs growth after a disappointing 75,000 increase in May.
Mester also reiterated her belief that inflation will gradually return to the Fed’s 2% target, albeit at a slower pace than originally forecast. She has long held that transitory factors, such as technological change, have kept inflation in check, however will closely monitor surveys of inflation expectations to determine the longevity of such factors.
— Courtesy of MT Newswires