U.S. Markets

Fed's Mester unmoved by weak U.S. inflation

Cleveland Federal Reserve Bank President and CEO Loretta Mester gives her keynote address at the 2014 Financial Stability Conference in Washington December 5, 2014. REUTERS/Gary Cameron

CLEVELAND (Reuters) - One of the Federal Reserve’s more hawkish policymakers said on Friday that recent inflation weakness was likely temporary and it should not delay another interest-rate hike this year, even though there is no “immediate need” to tighten policy.

Two months of unexpectedly soft price readings have raised questions over whether the U.S. central bank will delay its plan to continue raising rates, after having hiked twice in the first half, including in June. Median Fed forecasts show one more hike this year, and three next - a view Mester said she supported.

“I don’t think there is an immediate need to do something, I don’t think we are behind the curve, but I do think this gradual reduction of accommodation ... makes sense to me,” said Cleveland Fed President Loretta Mester.

Asked what would dissuade her from backing another rate hike and the beginning of shedding bonds this year, she told reporters: “I’d have to see that there is really a sharp decline in demand ... coupled with weak inflation data.”

Fed policy will ultimately depend on data, said Mester, who votes on policy next year under a rotation. “What people forget is that we’ve incorporated in that gradual (median) path some of the fact that inflation is gradually coming back up to target. We’ve already hedged that,” she added.

Reporting by Jonathan Spicer; Editing by Chizu Nomiyama