The Federal Reserve could move to raise interest rates as early as the first half of 2015 thanks to the strength of the economy, according to one central banker.
“I could imagine interest rates going up in the first half of the year,” Federal Reserve Bank of Cleveland President Loretta Mester said in an interview with Fox Business on Friday.
The Fed has held short-term interest rates near zero since 2008 in an effort to stimulate the economy, and said in its December monetary policy statement that it would be “patient” in moving toward raising them. Current market expectations reflected in bond markets put the timing in the second half of the year.
But with Fed officials promising to base the decision on incoming economic data, the underlying strength of the economy could prompt them to act relatively soon, Mester suggested.
“The economy, I think, is on very firm footing,” she said, citing a range of indicators, including both employment and output data. She also mentioned that low oil prices would be a “tailwind” for the U.S. economy.
“I have a pretty good outlook for 2015, I think we’re going to see growth around 3 percent,” she said.
It was one of the first few public comments for Mester as president of the Cleveland regional bank. She took over as president in June after being the director of research at the Philadelphia Fed.
Federal Reserve Chairwoman Janet Yellen said in a press conference following the December meeting of the central bank’s monetary policy committee that rate increases were not likely at either of the Fed’s next two meetings, which would make the late April meeting the first one in which the decision could be made.
Mester didn’t indicate which meeting she thought would mark the end of the zero-rate period, but said “we’re getting closer to our goals” of low unemployment and 2 percent inflation. Falling energy prices, she said, would have only a transitory effect on inflation.
After serving on the Federal Open Market Committee in 2014, Mester will not be a voting member in 2015 as a new group of regional bank presidents cycles onto the committee. She will be a voting member again in 2016.
