This week, Fed President Yellen stated we could expect at least one rate hike soon. Yellen can expect support for that policy prescription from Cleveland Fed President Loretta Mester who is one of the more hawkish Fed members. Mester made her opinions clear in a speech on July 13, given in Australia where Mester made the following observations about the economy:

In my view, the underlying fundamentals supporting the U.S. economic expansion remain sound. These include accommodative monetary policy, household balance sheets that have improved greatly since the recession, continued progress in the labor market, a more resilient banking system, and low oil prices.

While she observes the more commonly accepted importance of low interest rates (“an accommodative monetary policy”) and low unemployment (“continued progress in the labor market”), she also focuses on three lesser cited statistics supporting expansion.The financial obligations ratio is near its lowest level since the early 1980s, indicating families deleveraged after the Great Recession. The new Graham-Dodd regulations requiring additional capital have strengthened bank balance sheets. And Mester obviously agrees with James Hamilton about the importance of oil prices to the economy.

Consumer spending, which makes up about two-thirds of output in the U.S., has accelerated in recent months. The continued improvement in household balance sheets, growth in personal income, low borrowing rates, and relatively low oil prices have all buoyed consumer spending.

Retail sales and personal consumption expenditures are growing at solid rates, indicating the consumer, who is responsible for over 70% of economic growth, is spending at a pace to support economic growth. She also notes the importance of consumer credit to consumer spending. Mester places a great deal of understandable emphasis on U.S. consumer’s health, which is in very good shape.

After noting that parts of the housing market have clearly rebounded, she notes: