Fed's Mester says economy can handle rate hikes

US job growth will slow, but that is not an obstacle to stronger economic activity.

Speaking on monetary policy on Friday afternoon, the president of the US Federal Reserve bank of Cleveland, Loreta Mester, said the labour market will continue to improve and workers’ compensation will accelerate.

However, while a slowdown in the pace of payrolls growth was to be expected, monthly increases of between just only 75,000 to 120,000 were needed to keep the unemployment rate steady.

Hence, October’s “big” gain in jobs would not be repeated, she said.

Nonetheless, the rate of growth in gross domestic product would rebound towards 2.5% to 2.75% over the next 15 months, after having dipped in the third quarter of 2015.

The US economy can handle a rate increase and the longer interest rates remain at zero the greater the risks to financial stability, Mester said.