Fed’s Mester says if inflation doesn’t rise, Fed could stop hikes

Cleveland Federal Reserve President Loretta Mester told CNBC on Friday the central bank could stop hiking interest rates this year if inflation doesn’t rise.

The U.S. economy is “in a really good spot,” said Mester, who was a voting member of the policymaking Federal Open Market Committee in 2018 but not this year. “If we don’t see inflation picking up and we see the labor market staying reasonably strong from where we are now that may tell us we’re not neutral.”

“The economy is going to be telling us where we are,” she added, indicating the Fed could later reconsider its rate hikes projections.

The Fed last month raised its benchmark interest rate for a fourth time in 2018 and lowered its rate hike projection for 2019 from three to two. That eventually led to a stock sell-off, which caused the Dow Jones Industrial Average and Nasdaq to see their biggest weekly losses in more than 10 years. The S&P 500 had its worst week since August 2011.

Fed chief Jerome Powell did leave the door open to other options for this year, emphasizing “data dependency” and saying if data does not hold up in 2019 the Fed may change course.

Mester joined “Squawk Box” moments before the widely anticipated December jobs report. The report is expected to show 177,000 non-farm payrolls were added, after 155,000 in November. The unemployment rate is expected to be unchanged at 3.7 percent.