1:13 PM » Cleveland Fed's Mester stresses low inflation need
WASHINGTON (MarketWatch) -- Loretta Mester, the incoming president of the Cleveland Fed, used her maiden speech Friday to stress the importance of mantaining low and stable inflation in the economy. Mester suggested that stable inflation was the key ingredient for a healthy economy, even eclipsing low unemployment. "We cannot have full employment over the longer run without price stability over the longer run," she said in a speech to a conference on price levels sponsored by the district bank. Congress has given the Fed twin goals, often called the dual mandate, of stable prices and low unemployment. The Fed has set a 2% annual target for inflation. It has declined to set a similar target for low unemployment as estimates of this rate are subject to many virables that change over time. Mester will officially take over as head of the Cleveland Fed next week and immediately have a vote on the Fed's policy committee this year. The bulk of her remarks drilled down into how best to measure and forecast inflation. She said her own research has shown that the headline personal consumption index is a better predictor of future inflation than the core rate, which strips out volatile food and energy prices. This turns conventional wisdom about inflation on its head.