Cleveland Federal Reserve President Loretta Mester spoke with FOX Business Network’s (FBN) Peter Barnes about the United States economy and the timing of when interest rates will rise. Mester said, “interest rates are going to go up. Now, the timing of that is going to be dependent on the data and the outlook.” Mester went on to say “I could imagine the interest rates going up in the first half of the year.” Mester went on to talk about Gross Domestic Product (GDP) saying, “I think we’re going to see growth around three percent. I do believe inflation is going to gradually move back to our target.” When asked whether she sees bubbles in the financial markets, Mester said, “Right now I don’t see them, but we got to keep looking.” Mester also commented on oil prices saying, the oil price decline is a “tailwind” that will lead to a “a pretty good economy in 2015.”

Fed Pres. Loretta Mester: Interest Rates Likely Going Up In H1

Loretta Mester on when the Fed will raise short term interest rates:

“The economy, I think, is on very firm footing.  I think we’ve gotten some very good data in terms of growth and in terms of progress we’ve made on employment.  The unemployment rate has come down even more quickly than many economists had thought.  Inflation’s running a little bit low, but that’s going to be transitory.  I think as you know from the December meeting, the Fed is preparing the markets and the public for a time when interest rates are going to go up. Now, the timing of that is going to be dependent on the data and the outlook.  I have a pretty good outlook for 2015.  I think we’re going to see growth around three percent.  I do believe that inflation is going to gradually move back to our target.  So I could imagine the interest rates going up in the first half of the year.”

Loretta Mester on Yellen saying we’re not raising rates for a couple of meetings:

“But I think what she tried to convey is the idea that look, we’re going to be data dependent and then based on the outlook for the economy, probably not for the next couple of meetings.  Part of it is your outlook but also how confident are you in the outlook.  My view is that the data that’s come in has been consistent with thinking that we’re going to see an acceleration in growth and, therefore, I’m getting more — there’s — I don’t look at one particular statistic; I like to look at a panoply of statistics and across a number of different indicators that looks like the economy is picking up, gaining strength.  Headwinds are going down and we have a tailwind now with oil prices being lower, and therefore, you know, my outlook is for, you know, a pretty good economy in 2015.”

Loretta Mester on the November jobs report:

“I think that, again, I don’t like to focus on one particular report.  But if you look over the last 11 months, right, we’ve seen 10 of those months, over 200,000 jobs increases.  Again, I think we’ve made considerable progress in labor markets.  Firms are hiring and I believe that will continue and the unemployment rate has come down 5.8, close to where I think the long-term unemployment rate is, which I have at 5.5.   So, I think we’re getting closer to, you know, our goals on both, especially on unemployment and employment goal but also on the inflation goal because I believe that the temporary declines in oil prices will just temporarily keep inflation down and that inflation’s moving.”

Loretta Mester on oil prices helping economic growth:

“Well, I believe so.  You have to look at what’s the source of the drop.  Is it supply driven or demand driven?  It’s probably a little bit of both because we know that demand in Europe and emerging markets is down a bit. But I think that the majority of the oil price shock is driven by supply conditions.  And you’re exactly right in terms of that.  That’s a positive for growth, a net positive for growth in the U.S.”

Loretta Mester on when the Fed decides to raise rates how quickly the rates will rise:

“Again, I think we’re going to be a data driven committee.  I think we’re going to look at the forecast as data comes in, we’re going to look at does it change our forecast?  Is it consistent with our forecast? And we want to raise interest rates so that, you know, as the real rate in the economy goes out, the real return on capital goes up, we want to make sure that our short-term policy rate is moving up with it.   Again, we’re going to be data driven.  I don’t think there’s any plan or predetermined formula.  It’s going to be based on how close we are to our goals and how fast is the economy growing, how quickly is inflation getting back up to the 2 percent target. And then we’re going to guide policy based on that.  So, again, I think your question is a good one in the sense that, look, even after we raise interest rates for the first time, the so-called liftoff, the monetary policy is going to remain very accommodative. And then it’s sort of like, what’s the path?   If you look at the December — what the summary of economic projections that the FOMC participants put out, you can see that.  There is a path of interest rate increases over the next three years.”

Loretta Mester on the financial markets:

“I think largely the financial market conditions are good. I think they are supportive of growth. We have seen a lot of volatility towards the end of the year, but it looks like the economy has weathered that volatility, which I think is a good sign.”

Loretta Mester on whether she sees bubbles in the financial markets:

“Right now I don’t see them, but we got to keep looking.”