Fed's Mester: US economy is doing well, Fed is on hold

Fedspeak has resumed on Monday with Cleveland president Mester (hawk) at the University of Maryland who has stated that the US economy is doing well and that the Fed is on hold while watching how it evolves. 

Further comments:

  • US economic growth is basically around trend.
  • There is still solid growth in the labour market.
  • The underlying inflation rate looks like it is rising toward Fed's 2% goal.
  • Some risks remain, such as uncertainty on U.S. trade policy.
  • The U.S. consumer has been strong and resilient.
  • Monetary policy is now well-calibrated to the economy.
  • The Fed is basically "on hold," watching how US economy evolves.
  • She is watching for any signs of sectoral weakness spreading to wider US economy.
  • She preferred not to cut interest rates at the Fed's last meeting.
  • She is sympathetic to the view though that those interest rate cuts made sense and was a close call.
  • Says the Fed should be reviewing its framework periodically.
  • Fed is talking about whether to have standing repo facility. 
  • Fed has not come yet to a determination as to whether to set up a standing repo facility. 
  • Negative interest rates are negative in Europe and are working better than anticipated.
  • She doesn't support using negative rates in the US. 
  • Fed's Mester: Forward guidance in future may be tied to economic conditions

FX market implications:

There has been no reaction to the comments from Mester, a known hawk, despite her sympathy for the recent rate cuts which took some sting out of the US Dollar which reached a peak of 99.67 back on the 1st of October earlier this year. The DXY is currently trading at 97.74, -0.27% on the day having travelled between 97.68 and 97.98. Manwhile, and according to analysts at Westpac, the markets are pricing a "minimal chance of easing at the December meeting and a terminal rate of 1.27% (vs 1.63% currently)." 




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