Mester essentially expects the labor market to remain strong, inflation to rise at a sustainable pace — about two percent over the next year or two — and interest rates to go up this year and next, but at an “appropriate” pace — a pace not unlike last year’s.
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U.S. and global stocks have veered down sharply in the past week into correction territory, mostly on fears that inflation and interest rates will heat up at an uncontrollable rate.
Mester sounded a mostly calming note at the Dayton Marriott, however.
“I believe this gradual upward path of interest rates will help balance the risks and prolong the expansion so that our longer-run goals of price stability and maximum employment are met and maintained,” Mester told a standing-room-only audience. “This policy path gives inflation time to move back to goal while, at the same time, avoiding a build-up of risks to macroeconomic stability.”
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She added that the open market committee takes into account the lay of the economic land as it navigates monetary policy.
“We will need to calibrate our policy decisions to how the economy actually evolves and the implications of incoming information for the medium-term outlook and risks around the outlook,” Mester said.
She said it’s possible the recent federal tax package will spur productivity, which during the recent recovery has been unusually low nationally, only about one percent.
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Her projection for long-run economic growth: About two percent.
“Dayton has had its challenges,” she noted. “Over the 2001-2007 expansion, the Dayton region lost over five percent of its payroll jobs, while jobs grew more than five percent in the nation.”
During the last recession, Dayton lost another eight percent of its payroll jobs, compared to a loss of five percent nationwide.
“But things have improved,” Mester added. “In the Dayton region, payrolls are up 10 percent since the start of the expansion, an increase of about 35,000 jobs.”
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Mester toured West Dayton yesterday with questions about local housing values, said Phil Parker, president and CEO of the Dayton chamber. She’ll meet today with local bankers and others before heading back to Cleveland.
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