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00:00The numbers weren't particularly inspiring today we had flat core retail sales at a revision down for December. We had a contraction in manufacturing production . These may be early signs that the expansion is getting a little tired now. I don't think so. I mean I mean there are always going to be volatility in some of the monthly numbers. I think you have to take a little bit longer perspective. And if you look at the underlying fundamentals for the US economy they're pretty good. Right. The consumer side has been holding up . Yeah. There's volatility in some of the numbers. But all in all the fundamentals of higher income household balance sheets look good. The jobs market has been quite good. So I think the consumer side is holding up. The business side has been weak . We've had some signs of stabilization in the manufacturing side . So that's that's a good thing. Notwithstanding today's numbers and you know that's kind of the way the U.S. economy has been. The consumer side has been driving things. The business side for a number of reasons has been weaker. But again that looks like it's stabilizing too and I expect it to pick up later in the year. What's your forecast for growth for 2020 change at all since the last time you submitted it in December. I mean I think that you know we now have some new risks in terms including the coronavirus. So you have to take that into account when you're thinking about growth that I'm right now I'm thinking of that as a risk. You know I expect that certainly in China and perhaps in Asia the first quarter numbers are going to be weaker. There could be spillover the U.S. economy as well in the first quarter. And it remains to be seen by how much and for how long that will persist. But in general right. I'm seeing that as a risk to my forecasts. I haven't marked down my forecast because I don't have your people been able to put any kind of numbers on the risk for the coronavirus. It's very difficult. I mean usually the private sector numbers that I've seen are based on what was true with the SaaS epidemic. But you know the world's a lot different than it was in 2003. For one thing China is a much bigger part of the global economy than it was then. On the other hand China is also a wealthier country than it was then and they've already taken steps to try to limit the fallout as have other countries. So it's very hard to make those comparisons at this point. Right now we're just sort of evaluating a number of cases like everyone else's and then trying to figure out how much impact it will have on the U.S. economy. Our focus is on the US. I mentioned the manufacturing production contraction that we saw in January. Your district is the heart of manufacturing in this country. What are you hearing from factory owners and workers in your district. So all in all the manufacturers in our district are saying they don't see things falling off the cliff at all. They're not worried about recession. On the other hand they don't think things are necessarily going to pick up a lot. So you know it's steady . Orders are coming in. But nothing nothing to write home about higher or lower. It's just basically steady as she goes. So the trade deal Phase 1 not going to make a difference in terms of business investment. I think it's too early to see. I mean certainly the good thing about that signing of that deal is that some of the uncertainty around trade has gone down but we haven't. It's too early to evaluate whether that we're going to see a pickup or how much of a pickup in investment because of the domination of uncertainty. Well bottom line then Wall Street is betting that you guys are going to cut rates again this year. Are they out over their skis on that one. Well I think as is true whenever we go to FOMC meetings we evaluate the economic information that we glean from our district contacts and also the data. And we look at what financial market signals are telling us as well. And then we make a judgment about where policy is. Right. We've we've told the last FOMC meeting and the chairs remarks in the press conferences that we think policies in a good place. I certainly agree with that . You know inflation is low. Labor markets are strong. All right . The economy appears to be growing at around trend of 2 percent . And that gives us sort of a baseline to sort of watch and look and evaluate and then we'll determine whether a policy needs to move one way or the other going forward. Do you see anything on the horizon now that would suggest the need for more stimulus . I think policies in a good place right now. So again I think we just have this this good period where we can evaluate how things go. And if the outlook changes materially we'll have to decide whether we need to change policy in in reaction to that. But right now I think the outlook for the economy is is still good notwithstanding the risk that the Corona virus is posing for us . Do you still believe as you and your colleagues have said that inflation is going to hit 2 percent this year but by your measure the PCG. Well I've said that I think that inflation will be gradually hitting 2 percent. I think probably not until you know the end of this year. Or into next year. But nonetheless the early numbers. They'll be up just because some of the weak numbers last year drop out. But to be sustainably at 2 percent I think it's going to be a gradual uptick as the expansion continues and labor markets remain strong. Here in the middle of well farther than the middle perhaps of the policy framework review. And it seems to be heading in the direction of some sort of inflation averaging letting inflation run above your target for a while if it's run below. Do you like that idea and can you pull it off. Could you get inflation up higher than Target and let it run for a while. So the review is ongoing. As you know the minutes of FOMC meetings have kept people apprised of where we are. On the on the review and a number of different aspects of the review are being looked at including the strategy as you point out but also the tools that we use when we end up in a low inflation and low interest rate environment and also sort of the communications around. So I don't want to comment on any specific proposal that might be out there but I do want to say that it's a review that's ongoing . As the chair said we're aiming to have information by the middle sometime by the middle of the year . And you know we're trying what we're trying to do is make sure that our framework which includes those three aspects or are a good framework for achieving our monetary policy goals in an environment where it looks like the interest rates in the global economy are going to be low for some time. One of the focuses of this conference has been on digital payment systems. You spoke about that today. What are the big questions on Wall Street is will the Fed issue its own digital currency. So as I spoke about today there are a number of aspects that we need to study before any central bank issues its digital currency . There are some benefits to a potential digital currency but there are also risks with it including risks around governance including risks to the financial stability and including the transmission of monetary policy. So this is an ongoing area of interest at central banks around the world including the Federal Reserve. But a number of those aspects have to be resolved before any country would want to issue a digital currency in the US of course. There are certain aspects of our economy including the strength of the value of the dollar that make it sort of a different environments and then some other countries have. The New York Fed today for the second time announced a shrinking of the number of purchases they're making of Treasury bills and your effort to rebuild the balance sheet. Do you think you're going to be able to get out of it without disrupting the markets. A lot of people have been saying it is whether you say it or not it is QE. And that's why the markets keep going up. So it's not QE . We're not buying long term assets as part of this. There was some pressure in the markets in September . It turned out that although reserve levels are high. The distribution of those reserves resulted in some upward pressure on repo rates. And so are our target fed funds rate was trading a little bit outside of the range. So we took action and we're communicating so that we can explain what we're doing so that it won't be disruptive as we line this down. There's a discussion underway on Capitol Hill now about how members are appointed to the Fed board. Judy Shelton one of the controversial nominees that there's a two two sides to the issue. One says diversity on the board is very important. Diversity of opinion is very important. And then there's the other side . One senator said we don't want people with nutty ideas . What do you think about that kind of discussion . Well I think the way nominations happen is part of the way the Fed actually garners good people from the board. Obviously the president's purview is to nominate and then the Senate confirms . And so that process that I think has served the institution well and I expect it to continue to serve the institution well as a general proposition in terms of making monetary policy. We all come in with our own views based on sort of where we see the economy going. And we glean that from talking to people in our districts evaluating the data different models of the economy . And then we come together at that FOMC table with different views. To reach a consensus. So that process I think has worked very well . And so I think that I would not go beyond that in terms of any specific. Person that I think the process is worthwhile. No other argument or discussion that's being held on the Hill is what happens. You mentioned this. When you go into the next recession what tools do you use. And the chairman's talked about QE. He's talked about forward guidance. There's also a question out there about whether you would work in concert with the Treasury Department as they did in the 1950s to try to finance some sort of expansionary fiscal policy. Do you think that's a possibility or is fed independence too important to even think about that. I think independence of the Federal Reserve system is incredibly important. It served the country well for a long time and it makes monetary policy actually work in good times and bad times. That said you know it's you know there is something good when policies are attacking the same problem. So when you think about the Great Recession right. It wasn't just the Fed. Right . It was also the fiscal policy also was trying to get the economy moving again. If that's considered coordination. Right . I don't view it that way. I view it as both entities the fiscal authority and the monetary authority wanting to work on behalf of the US people to get the economy moving again. So that's not really coordinated policy but it's policies that are having the same goals. And I think that's fact. I would take one last question about what you could use . People are saying yes. Jay Powell has said we are not going to use negative rates. But Ben Bernanke he said never say never . What do you think. So I'm not a fan right now of thinking about negative rates as being useful in the US economy. I think our financial markets are very different than the financial markets in Europe. And so you know back in the day when they were thinking about what tools they would use to fight you know to get the economy back its forward guidance and QE purchases asset purchases were the tools that they went to. They didn't seem to work . And so I would have my focus on those two. I don't think negative rates are where I go .

Fed's Mester on U.S. Economy, Coronavirus Risk and Rates

Federal Reserve Bank of Cleveland President Loretta Mester discusses the current state of the U.S. economy, the threat posed by the coronavirus outbreak and the outlook for monetary policy with Bloomberg's Mike McKee on "Balance of Power." (Source: Bloomberg)

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