Fed's Mester: Financial stability risks and vulnerabilities are moderate

The US Federal Reserve's monetary policy will need to be very accommodative for some time to support the broadening of the economic recovery, Cleveland Fed President Loretta Mester said on Wednesday, as reported by Reuters.

Additional takeaways

"Fed's forward guidance is entirely consistent with revised monetary policy strategy."

"In the absence of inflationary pressures or risks to financial stability, the Fed will not react to strong labor market indicators."

"While it may take some time for supply disruptions to abate, the forces that have weighed on inflation are still present."

"Wouldn’t consider the increase in inflation expected this year to be the type of sustainable increase needed to meet the forward guidance on the Fed's policy rate."

"The Fed is expected to be deliberately patient barring clear evidence that inflation pressures will push inflation to exceed central bank's desired path."

"Need to see more labor market improvement before considering the conditions of our forward guidance on asset purchases as being met."

"Not clear that every labor market indicator should be expected to make it back to the levels seen in February 2020."

"Fed policymakers will need to use judgment rather than a mathematical formula to assess the health of labor market and its progress."

"Attuned to risks and vulnerabilities in the financial system associated with highly accommodative policy."

"Valuations in equity and residential real estate markets are elevated, reflecting investors’ high appetite for risk, low interest rates and positive prospects for the economy."

"Financial stability risks and vulnerabilities are moderate."

"Addressing fragilities in the treasury market and non-bank financial sector should be a top priority."

"Coronavirus pandemic has shown that things can evolve in a materially different way than expected."

Market reaction

These remarks don't seem to be having a noticeable impact on the USD's performance against its rivals. As of writing, the US Dollar Index was up 0.05% on the day at 91.33.