Cleveland Fed’s Mester upbeat on prospects for US economy

The US economy remains resilient, indicating the need for further policy tightening to avoid overheating, according to Loretta Mester.

The Federal Reserve Bank of Cleveland chief gave an upbeat assessment of the economy in recent remarks, citing strong sentiment, rising investment and business activity, and a labour market at maximum employment.

“A gradual removal of accommodation helps avoid a build-up of risks to macroeconomic stability that could arise if the economy is allowed to overheat,” Mester told the Economic Club of Pittsburgh. As well as backing further rate rises, she said she favoured beginning the gradual reduction of the Fed’s balance sheet “in the near future”.

Despite the broadly positive outlook, Mester said there were “longer-run structural issues” in the labour market that cannot be addressed by monetary policy – namely, the effects of technology and globalisation.

“While the overall economy will eventually benefit from these forces, many individuals and some regions are adversely affected by these structural trends,” she said. “Government policies and programmes and public-private partnerships can and should be brought to bear to help people gain the skills needed for jobs in the modern economy.”