Fed’s Mester lauds jobs report, but says loose policy is staying put

Loretta Mester, president and chief executive officer of the Federal Reserve Bank of Cleveland.

David Paul Morris | Bloomberg | Getty Images

The strong job gains in March were not enough to convince Cleveland Federal Reserve President Loretta Mester that it is time to change monetary policy.

The central bank official told CNBC on Monday that she welcomed the news that the number of non-farm workers rose by 916,000 during the month, driven by an increase in leisure and hospitality jobs, as well as an increase in government and construction company hiring.

However, the Fed will continue to seek to keep rates low until the employment picture improves significantly, she added.

“I think we will see a very strong second half of the year, but we are still far from our political goals,” said Mester during a Closing Bell interview. “It was great to see this report. We need more of them to get in our way.”

In addition to the large increase in employment, the unemployment rate also fell to 6%, the lowest level of the Covid-19 pandemic.

Nonetheless, the Fed will remain tied to ultra-loose policies until the labor market not only returns to full employment, but also achieves inclusive gains across income, race and gender lines. Central bank officials have also pledged to tolerate inflation slightly above their long-term 2% target if that is in the interests of a full recovery of the economy.

Parts of the financial markets expressed concern about possible inflationary effects due to the loose policy of the Fed as well as trillions of government stimulus spending.

But Mester said she was largely unfazed by this year’s surge in government bond yields. The 10-year Treasury note was last listed at 1.71%, which is close to its highest level since the pandemic.

“I think the higher bond yields are understandable in the context of the improving economic outlook. The increase was an orderly increase,” Mester said. “So I’m not concerned about the rise in yields at this point. I don’t think the Fed can act on anything.”

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