Fed's Mester says policy will stay accommodative for 'quite some time'

[January 05, 2021]   By Jonnelle Marte

(Reuters) -U.S. economic growth could surge later this year if most Americans are vaccinated against the coronavirus, but the gains would unlikely be enough for the Federal Reserve to withdraw its support, Cleveland Fed President Loretta Mester said on Monday.

Cleveland Federal Reserve Bank President Loretta Mester poses during an interview on the sidelines of the American Economic Association’s annual meeting in San Diego, California, U.S., January 3, 2020. REUTERS/ Ann Saphir

The economy is likely to struggle in the near term after a rise in coronavirus infections led to more restrictions, both voluntary and mandated, Mester said.

While the "medium" term outlook was more promising, with vaccines likely to help people feel safer doing certain activities, she expects the economy to remain far from the Fed's inflation and full employment goals.

"Monetary policy will need to remain highly accommodative for quite some time because achieving our monetary policy goals is likely to be a journey and not a sprint," Mester said during the annual meeting of the Allied Social Science Associations, which is being held virtually this year.

The policymaker said the recovery is likely to remain uneven, with some sectors recovering more quickly than others. Inflation is not likely to "move up quickly above" the Fed's 2% target, Mester said.

Fed officials vowed at their December meeting to keep interest rates near zero and to continue purchasing about $120 billion a month in government bonds until there is "substantial further progress" in meeting their inflation and employment goals.

Mester said on Monday the "current stance of policy is well calibrated" to her economic outlook. She said the U.S. central bank would adjust policy if economic performance veered from expectations or if new risks emerged, including threats to financial stability.

Fed policymakers remain "fully committed to using our policy tools to achieve our goals, in support of a broad-based and sustainable recovery," Mester said.

(Reporting by Jonnelle Marte; Editing by Sam Holmes)

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