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Fed's Mester strongly backs U.S. rate hike as prudent first step

Cleveland Fed President Loretta Mester takes part in a panel convened to speak about the health of the U.S. economy in New York November 18, 2015. REUTERS/Lucas Jackson

SAN FRANCISCO (Reuters) - The Federal Reserve's interest rate hike last month was a prudent first step to a more normal policy era and it signaled the central bank's confidence that the U.S. economy will continue to improve, a top Fed official said on Sunday.

"I fully supported the ... December action," said Cleveland Fed President Loretta Mester, a somewhat hawkish policymaker who regains a vote on U.S. monetary policy this year.

"It was prudent to take the first step on the path of gradual normalization of interest rates," she said in prepared remarks, and "an indication of monetary policymakers' confidence that the economic progress we have seen in recent years will continue."

The U.S. central bank tightened policy for the first time in nearly a decade in mid-December, raising rates from near zero. The move was much anticipated but could yet rock financial markets as the Fed weighs when to make another move.

Mester was fairly bullish on the economy's prospects.

She predicted "above trend" gross domestic product growth of 2.5 to 2.75 percent for the fourth quarter of 2015 and for all of 2016, and an inflation rebound as the effects of weak commodities and the strong dollar wane.

Mester also predicted wage growth and a further improvement in the U.S. labor market, where unemployment has fallen to about half of its 10-percent recessionary high.

(Reporting by Jonathan Spicer and Ann Saphir; Editing by Andrea Ricci)