December 5, 2014 / 7:26 PM / 4 years ago

Fed needs to acknowledge rate hikes are coming: Mester

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

WASHINGTON (Reuters) - The Federal Reserve needs to adjust its policy statement to acknowledge clear signs of economic strength and, in particular, stop telling the world that interest rates won’t rise for a long while yet, a top Fed official said in an interview on Friday.

Cleveland Fed President Loretta Mester told Reuters she is more optimistic about the economy than most of her colleagues at the U.S. central bank, and would probably be willing to tighten monetary policy sooner. But as the Fed approaches a key policy meeting on Dec. 16-17, she has not decided whether to dissent if the message remains too dovish for her taste.

“I really believe that our communications need to be adjusted based on what we’ve seen in the economy,” said Mester, who joined the Fed’s policy-making ranks in June and has so far backed its formal statements, including a reference that rates will likely not rise for a “considerable time.”

“I think that is really stale,” she said of the reference. “I don’t think that it can be in there.”

Mester, 56, took the reins of the Cleveland Fed after three decades working within the central bank. She has quickly emerged as a leading voice on how to best telegraph policy intentions to the public and financial markets, with Fed Chair Janet Yellen naming her to a subcommittee on communications.

On the timing of tightening, Mester said only that she expects rates to finally rise from near zero “some time” next year, when she predicts currently low inflation to edge toward a 2-percent goal. She said there was some evidence of wage strength in the November jobs report released earlier on Friday.

“I’m comfortable with the inflation situation,” Mester said. “I’d like to get it back up to goal, and I think it will go there gradually.”

Reporting by Jonathan Spicer; Editing by Paul Simao

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