The U.S. economy is on solid footing and any weakness in the first three months of the year is just a speed bump, said Cleveland Fed President Loretta Mester on Thursday.
“While growth in the first quarter may come in on the weak side, I think this largely reflects transitory factors and residual seasonality in the data,” Mester said in a speech at the Chicago Fed and DePaul University’s Center for Financial Services annual risk conference in Chicago.
The Atlanta Fed’s GDPNow model for GDP growth, which mashes 13 subcomponents together, has been cut to 1% from earlier estimates of 2.5%.
The government on Thursday raised its estimate for fourth-quarter GDP growth to a 2.1% annual rate.
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Economists surveyed by MarketWatch expect growth to slow to 1.7% in the first quarter.
In her remarks, Mester said she expects GDP growth for the year to be above 2%.
And the strong economy should lead to a “sustained” increase in inflation to the Fed’s target, the Cleveland Fed president said.
“I believe the conditions are in place for a sustained return over the next year or so to our symmetric goal of 2% inflation,” Mester said.
Mester is not a voting member of the Fed’s policy committee this year. She is seen as relatively hawkish.
The Cleveland Fed president said, if the economy performs as she expects, the Fed should continue to raise interest rates.
But she did not specify how many more rate hikes she would support this year.
“My current assessment is that the pace of removal won’t call for an increase in the fed-funds rate at each meeting, but it does mean more than the one-increase-per-year seen in the past two years,” Mester said.
She said she supports starting to shrink the Fed’s balance sheet by ending reinvestment of maturing principal.
“If economic conditions evolve as I anticipate, I would be comfortable changing our reinvestment policy this year,” she said.