An interview with the newest regional Federal Reserve President Loretta Mesterby Jay Elwes / November 10, 2014 / Leave a comment
“I think that again we, like the United Kingdom, have seen very slow wage growth, so far,” says Loretta Mester, President and Chief Executive Officer of the Federal Reserve Bank of Cleveland. “But again as the economy picks up some momentum and unemployment continues to fall and firms continue to hire, I expect wage growth to pick up.” Loretta Mester took charge of the Cleveland Fed in June. She is also a voting member of the Federal Open Market Committee—the body chaired by Janet Yellen, the Chairman of the Federal Reserve Bank—which sets US interest rates.
Mester spoke exclusively to Prospect on a wide range of subjects, including the concept of secular stagnation. This theory was first posited by the economist Alvin Hansen in 1938 and recently resurrected by Lawrence Summers, the former United States Treasury Secretary. The theory states that economies can experience long periods of weak demand, which cannot be overcome even by near-zero interest rates.
“I am probably a little bit more optimistic about the US economy, I think fundamentals are very good here,” says Mester. “We have made a lot of progress. I am not as negative as some on longer-term growth. I am still thinking that there will be around 2.5 per cent—I admit that this is a little bit slower than I would have had before the financial crisis.”
Mester says that “there has been some decline,” in economic growth for the US and other developed economies, “but that reflects things like demographics.” In her remarks she also addressed the connection between technological innovation and growth, which some experts, most notably Professor Robert Gordon of Northwestern, have suggested is ruptured.
“I am more positive on innovation,” says Mester. “I think that some people are saying that innovation—we have basically gotten all we can out of tech innovation—and I don’t buy that. I think we have more to do there and I am more positive.”
According to the International Monetary Fund, the US will experience Gross Domestic Product growth of 2.8 per cent in 2014—UK GDP growth is expected to be 3.1 per cent. But just as significant as the economic growth itself is what happens to wages.
“Research has shown that wage growth picks up with inflation, it doesn’t necessarily lead inflation,” she says. “I am expecting as growth picks up here…