(Bloomberg) — Broad U.S. economic strength may allow the Federal Reserve to start raising interest rates within the next six months and the data will determine the pace of policy tightening thereafter, a regional Fed chief said.
Federal Reserve Bank of Cleveland President Loretta Mester said in an interview with Fox Business Network today that she had a “pretty good” outlook for U.S. growth of around 3 percent in 2015, with inflation heading back up toward the Fed’s 2 percent target while unemployment continues to decline.
“I could imagine interest rates going up in the first half of the year,” said Mester, a voter on the policy-setting Federal Open Market Committee in 2014, who didn’t dissent at any of the meetings she attended after taking the helm at the Cleveland Fed in June.
The Fed has held rates low in an effort to help banks, and consumers with large amounts of debt. The low rates have hurt insurers’ efforts to support lines of business that depend heavily on returns from fixed-income investments, such as long-term care insurance, long-term disability insurance and some types of annuities.
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Prospects for the first Fed rate increase since 2006 have heightened amid widening evidence of U.S. economic health after years of disappointment following the worst slump since the Great Depression. Third-quarter growth was revised up to a 5 percent annualized pace, the strongest in a decade, and unemployment had dwindled to 5.8 percent in November from 6.7 percent earlier in the year.
“Across a number of different indicators it looks like the economy is picking up, gaining strength,” with headwinds declining and a lower oil prices providing a tailwind, Mester said. “My outlook is for a pretty good economy in 2015.”
The FOMC in December replaced a pledge in its policy statement that rates would be kept low for a “considerable time” with an assurance it would be “patient” in the timing of liftoff. Fed Chair Janet Yellen told reporters that meant no rate increases for at least the next two meetings, indicating no move before the FOMC gathers on April 28-29.