Live on Bloomberg TV

00:00MEMBERS. > > WE WELCOME THE CLEVELAND FEDERAL RESERVE BANK PRESIDENT TO BLOOMBERG TELEVISION AND RADIO WORLDWIDE. THANK YOU FOR COMING IN. THE NEWS FOR THE FED IS JAY POWELL, LET ' S TALK ABOUT SOMETHING HE SAID. " I THINK THE CASE FOR RAISING RATES AT OUR NEXT MEETING IS COMING TOGETHER. " DO YOU AGREE? > > I DO AGREE WITH THAT. I HAVE BEEN ON THAT CASE FOR A WHILE THAT WE REALLY NEED TO BE MOVING GRADUALLY, GIVEN WHERE THE ECONOMY IS. GROWTH IS THAT A SUSTAINABLE PACE, LABOR MARKETS CONTINUE TO IMPROVE INFLATION IS BELOW OUR TARGET,, BUT IT IS ON A PATH TO MOVING UP 2%. WE HAVE BEEN AN INTEREST RATE FOR THE VERY LOW FOR QUITE A WHILE, IT MAKES SENSE TO START BRINGING IT UP GRADUALLY. WE RESPOND TO DATA AS IT COMES IN, WE WILL CHANGE OFF OF THAT. THIS TRAGEDY OF MOVING STRAIGHT -- THE TRACKS -- THE STRATEGY OF MOVING UP MAKES SENSE TO ME. MONETARY POLICY HAS TO BE PREEMPTIVE. I DON ' T HAVE CONCERNS ABOUT MOVING STRAIGHT UP GIVEN HOW LOW IT IS,, EVEN THOUGH WE HAVEN ' T HIT 2% INFLATION YET. > > IN THE LAST TWO DAYS, GOVERNOR POWELL AND CHAIR YELLEN SAID THERE ' S A POSSIBILITY THAT INFLATION MODELS ARE WRONG AND THAT WE WON ' T SEE IT RISE TO 2%. > > WE ALWAYS HAVE TO BE OPEN TO THE FACT THAT THE MODELS COULD BE WRONG. ONE OF THE REASONS IT HAS BEEN A GRADUAL IS BECAUSE WE HAVE BEEN RECALIBRATING THINGS OVERALL GIVEN THE EVIDENCE. TAKE A LOOK AT THE SUMMARY OF ECONOMIC REJECTIONS, YOU WILL SEE SOME OF THOSE STRUCTURAL ASPECTS OF THE ECONOMY HAVE MOVED IN RELATION TO THE DATA. MY OWN INDUSTRY PATH I HAVE ADJUSTED, IT LOOKS LIKE INFLATION WAS GOING TO REMAIN LOWER THAN LONGER THAN I THOUGHT. I THINK WE ARE ALL OPEN TO MODELS BEING WRONG, THAT ' S WHY IT IS PRUDENT WE TAKE A PRUDENT APPROACH. WE WANT BOTH RISKS, UPSIDE AND DOWNSIDE. WEIGHING THOSE RISKS, I THINK INTEREST RATES SHOULD REMAIN ON THIS UPWARD PATH. > > WE ARE TALKING GRADUAL, NOT A STRONG UPWARD PATH. > > WHERE WOULD YOU PUT THE NEUTRAL RATE NOW? > > THE SHORT RUN IS PROBABLY AROUND ZERO IN TERMS OF THE REAL RATE. THE LONG RUN, IF YOU LOOK AT THE SVP ' S, THEY TAKE A NOMINAL FED FUNDS RATE AND THOSE ESTIMATES ARE BELOW 3%. AGAIN, I THINK THE SIGNIFICANT THING IS THE FOMC HAS MOVED THEM DOWN, AS TO EVIDENCE THAT WE MAY HAVE A LOWER INDUSTRY ENVIRONMENT FOR A LONG TIME. > > AS YOUR ESTIMATE OF WHERE THE NEUTRAL RATE IS GIVEN THE ECONOMY FOLD IN YOUR ECONOMIC OUTLOOK, ARE YOU MOVING IT UP OR DOWN? > > IN THE LONG-TERM NEUTRAL RAY, I HAVE MOVED MINE DOWN OVER TIME. I HAVE NOT ADJUSTED IT RECENTLY, I DON ' T ANTICIPATE TO ADJUST IT IN THE NEXT SUBMISSION. > > HOW MUCH WEIGHT DO YOU PUT ON THE YIELD CURVE THESE DAYS? ARE YOU WORRIED IT HAS NARROWED SO MUCH THAT BELONGED IN HAS COME DOWN, THE SHORT AND HAS GONE UP? > > I THINK THAT ' S PART OF THE ECONOMIC AND FINANCIAL CONDITIONS HAVE TAKEN INTO ACCOUNT. I READ THAT AS BEING FINANCIAL CONDITIONS ARE VERY ACCOMMODATION -- ACCOMMODATIVE. THAT ' S TRYING TO MOVE THAT INTEREST RATE UP GRADUALLY BACK TO EIGHT NORMAL HEALTHY STANCE. > > PEOPLE LOOK AT THE YIELD CURVE AND SAY WHEN WE GET AN INVERSION, WE GET A RECESSION. WE ARE VERY NARROW, IS THERE

No schedule data available.

Fed's Mester Says Rates Should Rise Gradually

Cleveland Fed President Loretta Mester discusses the outlook for Fed monetary policy with Bloomberg's Mike McKee on "Bloomberg Markets." (Source: Bloomberg)

More From Bloomberg Markets
All episodes and clips