Fed's Mester: Supports rate increase in March

Loretta J. Mester, president and CEO of the Federal Reserve Bank of Cleveland, is crossing the wires and has stated that there's a strong case to start reducing accommodation and she supports rate increase in March.

Key comments

Says future rate increases will be guided by the economy.

Says if inflation is not coming down by the middle of the year then the Fed will need to remove accommodation at a faster pace.

Says her view is the fed can move considerably faster to shrink balance sheet than it has in the past

Says fed will be careful with balance sheet plan to not disrupt financial markets.

Says having inflation be under control is going to help the fed sustain the expansion.

Says she doesn't see a compelling case to start with a 50 bp rate increase.

Says that is something the committee is going to have to talk about and decide.

Says each meeting is going to be in play.

Mester says she suspects the fed will need to get interest rates above neutral but doesn't see an immediate need to do that.

Says the balance sheet is not the Fed's primary policy tool.

Says she expects the fed will set the balance sheet on a path to reduce it and use the Fed funds rate as the main policy tool.

Says as balance sheet runs down that will remove some accommodation.

Sales of MBS would need to be done carefully to not disrupt the markets.

Says Fed is still talking about what the actual balance sheet plan would look like.

Says Fed would not necessarily sell mortgage-backed securities from the start.

Says active sales would come later.

Says it's important the fed return to a primary treasury portfolio.

Says with the economy doing well it's time to start reducing the balance sheet.

Says her view on bond sales might change as time goes on.

US dollar on the backfoot 

The US dollar is on the backfoot in New York trade as measured by the DXY index against a basket of currencies. It is losing some 0.23% at the time of writing.