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Fed’s Mester Says Policy Should Hold Steady in Coming Months

Christopher Condon
·2 min read

(Bloomberg) -- The U.S. economy will require steady, continued support from monetary and fiscal policy throughout 2021 as it faces a bleak winter before reaching a vaccine-driven, mid-year rebound, according to Federal Reserve Bank of Cleveland President Loretta Mester.

“A slowdown in the economy in the first part of the year along the lines I am expecting would not require a change in monetary policy so long as the medium-run outlook remains intact,” Mester said in the text of remarks she’s set to deliver Monday evening.

“Nor would the strengthening in growth I expect to see later this year necessitate a change in our policy stance because I expect that the economy will still be far from our employment and inflation goals,” she added.

Covid-19 infections are surging across much of the U.S., driving up hospitalizations and deaths and also slowing economic activity. But the distribution of vaccines, although slower than some had expected, is causing economists to predict a rebound in output in the second half of 2021.

In December, the Fed’s policy-making panel left interest rates near zero and pledged to continue its large-scale asset purchases until it saw “substantial further progress” in employment and inflation.

Mester, who isn’t a voter on the Federal Open Market Committee in 2021, said the current monetary policy stance was “well calibrated to my outlook.”

She acknowledged the economy had weathered the pandemic better than she had anticipated, and that a new $900 billion relief package passed by Congress just after Christmas will also boost the economy.

Still, some more action would speed the recovery, she said.

“The recently passed $900 billion of additional fiscal relief will help support households and businesses hardest hit by the pandemic in the first half of 2021, helping to provide a bridge until the economy improves later in the year,” she said. “Further investment in vaccine deployment and aid to states responsible for distributing the vaccines would support a broader and faster recovery.”

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