Fed's Mester Calls for Preemptive Tightening -Press

     WASHINGTON (MNI) - Cleveland Federal Reserve Bank President Loretta Mester

warned Friday policymakers cannot wait until inflation hits 2% before continuing

with normalizing interest rates. 

     "I don't think we can wait until inflation gets back up to 2%. We've

learned over time that we need to be preemptive and that means we need to be

forward-looking," she said in a CNBC interview.  

     "I admit that it's hard to forecast inflation," but "where inflation is

today is not a very good forecast of where it's going tomorrow, Mester said on

the sidelines of the Fed's annual economic symposium in Jackson Hole, Wyo. 

     "Inflation is the place where there's been a couple of weak readings, but

again the best forecast has it going back up to 2% gradually over time. It seems

it's time to keep on this gradual reduction of accommodation," Mester said. She

is not a voter on the Federal Open Market Committee this year. 

     She said she see GDP growing "a bit above" 2% this year, her projection of

the longer term trend for economic expansion, driven by momentum in the

underlying economy. 

     The labor market has continued to be strong, adding about 180,000 new jobs

a month, "which is a very good thing," and business investment has bounced back

from very low levels, Mester said. 

     All that happened without much help from fiscal initiatives from the new

administration. 

     Business confidence, which jumped after the presidential election in

November, hadn't translated into improved economic activity. Now facing

uncertainty over tax and regulatory reforms, firms in her region are in a

wait-and-see mode, Mester said. "So if anything, it actually may be a little

weakening in activity." 

     Mester said she's "not overly concerned" with the level of stock prices at

the moment because earnings are robust and low rates make asset prices look a

little higher than they would otherwise. 

     Financial instability and excess leverage in the system are risks caused by

low rates and should be taken into account in making policy decisions, Mester

said, and support the gradual path of reduction in accommodation. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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