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Hawkish Fed official comfortable with raising rates in current economy

Explains economy is on sound footing

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Cleveland Federal Reserve President Loretta Mester explained in a speech in Singapore that she would be comfortable raising the federal funds rate if the economy maintains its current pace of performance, according to an article by Masayuki Kitano for Reuters.

Mester is seen as one of the more hawkish Federal Reserve officials, according to the article. She explained the economy is on a sound footing, but cautioned against expecting the central bank to solve problems such as low productivity growth, which she explained is beyond its control.

From the article:

"We did have a temporary oil price shock which held down inflation, we had the dollar appreciation which held down inflation. Those have passed through and the trend in inflation is, it's moving up," Mester said during a Q&A session with the audience after her speech at a central banking seminar in Singapore.

"So I'm comfortable that inflation is near its goal and moving toward its goal... I'd be comfortable with an increase in the (federal) funds rate at this point, if the economy keeps going the way it's going."

Mester has dissented against decisions to keep rates steady at past meetings, instead preferring a faster pace of rate hikes. On Monday, she urged the Fed to focus on returning to a more normal policy footing, including trimming its $4.5-trillion bond portfolio.

However, Mester didn’t place a timeline on her expectations.

Over the past two years, the Fed raised rates only once each year. However some experts predict 2017 will see a more hawkish Fed as it raises rates several times throughout the year. But then again, experts also predicted 2016 would bring several rate increases.

In fact, Jason Obradovich, New American Funding executive vice president explained to HousingWire that the Fed probably won’t be raising rates as much as it would like.

But while the Federal Open Market Committee unanimously voted to maintain the target range for the federal funds rate at 0.5% to 0.75% during the first meeting of the year, the Mortgage Bankers Association explained at its National Mortgage Servicing Conference in Dallas that the case is strengthening for a March rate hike.

But how to other Fed members feel about raising the federal funds rate this year? We may get more of a sense for their sentiment after the minutes from January’s meeting are released Tuesday.

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