Fed's Mester: Does not 'at this time' support cutting interest rates to spur a faster return of inflation to 2% goal

Cleveland Federal Reserve Bank President Loretta Mester said on Monday that the US economy should continue to perform well this year and monetary policy is currently well-positioned. "The economy has been performing well and I expect that to continue," Mester said in prepared remarks to the National Association for Business Economics conference in Washington. She did, however, note that she has incorporated the potential impact of the coronavirus as a downside risk to her forecast this year, which is for U.S. economic growth around 2%, solid job market gains and low and stable inflation.

Key notes

• Fed's Mester repeats that US monetary policy is 'well calibrated'.
• Mester says there are risks to the US outlook, including impact of coronavirus outbreak.
• Mester says she expects the US economy to continue performing well.
• Mester says her 2020 economic outlook is for u.s. expansion to continue with growth around trend, a solid labour market and low and stable inflation.
• Mester says consumer spending slowdown in Q4 of 2019 'isn't troubling'.
• Mester says she sees PCE inflation returning to 2% goal gradually over next year or two.
• Mester says she does not 'at this time' support cutting interest rates to spur a faster return of inflation to 2% goal.
• Mester says the Fed should be particularly attuned to financial market developments in current environment.

Market implications

The US stock markets have hit a three-week low on worries the spread of the coronavirus to multiple countries outside China which could pose an escalating threat to global growth. Fed comments are welcomed as investors look for clarity.  "At this point, it is difficult to assess the magnitude of the economic effects, but this new source of uncertainty is something I will be carefully monitoring," Mester said.

"That echoed other Fed policymakers, who have so far stuck to the line that it is still too early to predict the economic impact on the US economy of the virus, while showing cautious optimism any effects would be temporary enough not to warrant a change in the path of monetary policy. Those hopes may not last. European shares suffered their biggest drop since mid-2016 on Monday and oil plunged almost 5% on the news of a jump in coronavirus cases in Italy, South Korea, Japan and Iran," Reuters News warned.