Market drop nowhere near harming U.S. economy: Fed's Mester

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 24, 2018. REUTERS/Brendan McDermid

NEW YORK (Reuters) - The recent cratering of stock markets is nowhere near severe enough to rattle confidence and significantly hurt U.S. business and consumer spending, a Fed official said on Thursday, in the latest unruffled message from the U.S. central bank.

In a speech, Loretta Mester, president of the Cleveland Fed, reinforced the U.S. central bank’s steady-as-she-goes expectation to keep gradually raising interest rates in the face of a nearly month-long fall in major U.S. equity indexes, which has been driven by worries over the effects of U.S. tariffs and a slowdown in China.

“While a deeper and more persistent drop in equity markets could dash confidence and lead to a significant pullback in risk-taking and spending, we are far from this scenario,” said Mester, who leans somewhat hawkish.

“Similar to the swings in the market we saw earlier this year, the movements of late do not seem to be signaling that investors are becoming overly pessimistic,” she added.

The roughly 7 percent selloff in the S&P 500 this month has also reflected concerns over corporate earnings and higher borrowing costs, investors say. The Fed raised rates last month to above 2 percent, and expects to hike again in December amid what Mester called a “very strong” labor market.

Overall, she said, the economy is doing “very well,” with inflation at the Fed’s 2 percent goal and business and consumer spending expected to remain robust, with no strong pullback in a cooling housing market.

With unemployment at 3.7 percent, its lowest rate since the 1960s, Mester, like Fed Chair Jerome Powell, framed monetary policy as a balance between risks of overheating the economy and unnecessarily choking off its nearly record-long expansion.

“We are nearing the completion of the exit from the period of extraordinary monetary policymaking and moving close to a period of normal policymaking,” she told investors at a Money Marketeers dinner, a few blocks from Wall Street.

Reporting by Jonathan Spicer; Editing by Leslie Adler