US growth to recover after 'rough-patch', Fed's Mester says

The US economy would manage to work through the current 'rough patch' and resume moderate growth, requiring the gradual removal of monetary stimulus, a top US rate-setter said on Friday.

In a speech delivered in Sarasota, Florida the president of the Federal Reserve bank of Cleveland, Loretta Mester, said: "the economy will work through this rough patch and resume a trajectory of moderate growth, with continued improvement in labor markets and a gradual return of inflation to 2%, I believe the appropriate policy path will involve gradual reductions over time in the extraordinary level of accommodation that was necessary to address the Great Recession."

She cited the slower expansion overseas, teh appreciation in the US dollar, tighter financial conditions and the ongoing rebalancing between demand and supply in the energy sector among the headwinds that were buffeting the US economy.

"While there is a possibility that a steeper, more persistent drop in equity markets could lead to a broader and more persistent pullback in risk–taking and credit extension, with spillovers to the broader economy, so far we have not seen this. Solid labor market indicators, including strong payroll growth, and healthy growth in real disposable income suggest that underlying US economic fundamentals remain sound."

Monetary policy would continue to be data-dependent and would likely need to remain accomodative for "some time to come", she added.