Cleveland Fed president says rate hikes can stop if inflation doesn't rise

If inflation stops rising in 2019, policymakers at the U.S. central bank will no longer need to hike short-term interest rates, according to Cleveland Federal Reserve President Loretta Mester.

“We’re trying to gear the economy,” she told CNBC on Friday. “We don’t want it to have to overheat, which ends up with bad outcomes for the public. We know when we went into recession, that wasn’t a good outcome for anyone...And yet, we don’t also want to put the brakes on the economy.”

Mester, who was a voting member of the Federal Open Market Committee in 2018, but will not be in 2019, noted that the U.S. economy is currently in a “really good spot”, suggesting that Fed policymakers could afford to take time to decide whether to raise interest rates or not.

"If we don't see inflation picking up and we see the labor market staying reasonably strong from where we are now, that may tell us we're not neutral,” she said.

Mester’s comments came ahead of the December jobs report, which revealed that the U.S. economy added 312,000 jobs last month -- almost double the number that Wall Street was anticipating. Average hourly earnings meanwhile rose by 11 cents to $27.48. Over the year, average hourly earnings have increased by a total of 84 cents, or about 3.2 percent.

“We see strong labor markets, which is good,” she said. “And we have time to assess the situation, so I think we’re actually in a good spot.”