Virus is risk but policy patience appropriate, says Fed’s Mester

Bloomberg

Federal Reserve Bank of Cleveland President Loretta Mester said the worsening coronavirus outbreak represents a threat to the US economy, but not one that yet justifies any change in monetary policy.
“At this point, it is difficult to assess the magnitude of the economic effects,” Mester said in the text of remarks she was scheduled to deliver in Washington. “I’ve incorporated it as a downside risk to my modal forecast,” which calls for economic growth of about 2%, healthy consumption and some pickup in business investment spending.
US equities tumbled alongside stocks in Europe and Asia as authorities struggled to keep the coronavirus from spreading more widely outside China. Fed officials have repeatedly stressed they are monitoring the situation but have so far signalled they are not considering another decrease in interest rates after three cuts last year.
“In my view, our current policy stance is appropriate given the outlook of growth near its trend pace, solid labour market conditions, and inflation rates not far” from the Fed’s 2% goal, Mester said.
Policy makers next gather on March 17-18. Prices in fed funds futures contracts show investors expect two quarter-point cuts this year.
Mester, who is a voter this year on the Federal Open Market Committee, said she expects the US economy to keep growing healthily, driven by consumer spending that’s supported by a 50-year low in unemployment.
The Cleveland Fed chief said it’s important for policy makers to make sure inflation returns to the Fed’s 2% target after missing to the low side for several years. But to get there she favours holding off on future rate hikes as opposed to cutting further.
“I support taking an opportunistic approach to raising inflation to our symmetric goal,” she said in a speech at a conference hosted by the National Association for Business Economics. “This entails leaving policy at current levels for a time to support a firming in inflation rates.”
“My current view is that monetary policy is well calibrated to support our dual mandate goals, and a patient approach to policy changes is appropriate unless there is a material change to the outlook,” the central bank’s president in Cleveland said during her speech.

Key Republicans still undecided on Shelton’s Fed nomination
Bloomberg

Three key Republicans on the Senate Banking Committee said that they remain undecided on President Donald Trump’s nomination of Judy Shelton to the Federal Reserve Board.
“She doesn’t have my vote yet,” Alabama Senator Richard Shelby said as lawmakers returned to Washington from a break.
Republican Senator John Kennedy of Louisiana said he’s still reviewing Shelton’s work, trying to determine where she stands on policy issues regarding the Fed.
“I’m just trying to understand what her position is,” he said. “It’s changed pretty dramatically.”
Senator Pat Toomey, a Pennsylvania Republican and another member of the Banking Committee, is also undecided, according to his office.
A single Republican “no” vote on the panel would be enough to block Shelton’s nomination, assuming Democrats — who were pointed in their criticism of her at an earlier hearing — are united in opposition. A vote on her nomination hasn’t been scheduled.

Shelton, a former economic adviser to Trump’s presidential campaign, is a controversial pick because of her past comments advocating returning the dollar to the gold standard, and that she was “highly skeptical” that the Fed’s congressional mandate to pursue maximum employment and stable prices was relevant.
Senator Sherrod Brown of Ohio, the senior Democrat on the Banking Committee, said he didn’t think Shelton’s nomination would advance.