Cleveland Federal Reserve President Loretta Mester has boosted her outlook for the economy and gross domestic product for 2018.
"I've been upping my forecast. I'm now at 2.75 percent to 3 percent for the year, probably closer to 3 percent," Mester told CNBC on Friday at the Fed's annual summit in Jackson Hole, Wyoming. "I think that the fiscal policy — the stimulus and the tax cuts — has been a positive for the economy in terms of demand growth, and so that's one of the factors," she said.
"But also there's been more momentum in the economy than I might have anticipated," she added. "Again, we're at our targets, and yet we have accommodative monetary policy. Right now, this gradual upward path of policy rates seems appropriate to me," she said.
"We're basically at our 2 percent inflation target and I think we'll be sustainably at that by the end of the year," she told CNBC.
"We are monitoring financial conditions, we're monitoring them very carefully. I think we're doing a better job than we did in the past, but we certainly look for risk," she said. "Leveraged lending is little up there, I think if you look at stock prices and other asset valuations, some of those are excessive. So we've got to take that into account."
Meanwhile, many economists agree, saying growth in the second half of 2018 could clock in at 3 percent or more.
While that would be slower than the second quarter’s 4.1 percent pace, it would be enough to make the entire year’s performance the best since 2005, when gross domestic product climbed 3.5 percent, Bloomberg reported.
“It’s a green ‘go’” for the economy, said Allen Sinai, president of Decision Economics Inc. in New York, who sees GDP expanding 3.1 percent this year.
Growth of 3 percent in 2018 should also be welcomed by the White House. It would be a down payment on the Trump administration’s controversial claim that business tax breaks, deregulation and more-favorable trade policies will lift expansion to that pace on a sustained basis.
Caveats to the brighter outlook abound, however. Chief among them are the turmoil from Trump’s tariffs on imported metals and a variety of Chinese goods. U.S. stock-market investors have mostly shrugged off the tumult -- share prices are near record highs -- but that could change if Trump widens the trade battles to include automobiles, a key global industry.
Many economists also question how long the good times can last, as borrowing costs head higher, while the boost from lower taxes and higher spending fades next year before disappearing in 2020.
Material from Bloomberg, Reuters and the Associated Press were used in this report.
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