Fed's Mester: U.S. monetary policy 'in a good spot'

COLLEGE PARK, Md. (Reuters) - The current level of interest rates is appropriate for the U.S. economy and the Federal Reserve should now pause as it monitors how the economy evolves, Cleveland Fed President Loretta Mester said on Monday.

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“We think that policy now is well calibrated to the economy and we are really going to be looking at the data going forward to see whether any adjustment is needed in that we’re in a good spot,” Mester said during an event held at the University of Maryland.

Mester, who has been against all three interest rate cuts this year, is the latest U.S. central bank policymaker to emphasize the Fed is now effectively on hold with interest rates.

The U.S. Federal Reserve cut interest rates in July for the first time in a decade and followed that with a further two reductions at subsequent meetings in September and October.

Mester said that while she was against last month’s rate decision, she was sympathetic to the reasons for it and it was “a close call.”

Since that meeting Fed Chair Jerome Powell and others who have publicly spoken have also made clear they are now looking to keep interest rates unchanged over the coming months unless there is a material deterioration in the U.S. economic outlook.

The moves had been characterized as a “mid-cycle” adjustment designed to offset headwinds to the U.S. economy from slowing global growth and the U.S.-China trade war, which has hurt manufacturing and business investment.

But fears that such weakness could spread to the wider economy have not materialized with the U.S. economy growing moderately, unemployment near a 50-year low and consumer spending, which accounts for roughly 70% of U.S. economic activity, holding up.

Mester has cited those strengths as evidence of a resilient economy in her reasoning for not supporting this year’s reduction in borrowing costs.

Mester repeated her view the U.S. economy is doing well, with economic growth around trend, the labor market still solid and the Fed’s preferred measure of inflation gradually moving back toward the central bank’s 2% goal.

Like her colleagues, she said she was now watching and waiting to see if sectoral weakness spreads to the wider economy but so far the U.S. consumer has been strong.

Asked her view on negative interest rates, Mester told the audience that Europe’s use of them “is perhaps working better than I might have anticipated” but added she is not supportive of such an approach in the United States should there be a downturn.

“Our financial markets are very different than theirs. We are more market-centric,” Mester noted, adding she would prefer a return to quantitative easing and forward guidance, given they have already been successfully used in the past.

The Cleveland Fed chief does not currently have a vote on interest rate policy but participates fully in deliberations. She regains a vote on the Fed’s policy committee next year.

Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama and Andrea Ricci