Leading Hawk Esther George Urges Fed to Be Patient With Any More Hikes
Bloomberg
Published Jan 16, 2019 05:15
Updated Jan 16, 2019 10:04
Leading Hawk Esther George Urges Fed to Be Patient With Any More Hikes
(Bloomberg) -- Federal Reserve Bank of Kansas City President Esther George, who has been one of the most hawkish members of the central bank’s policy group, urged her peers to be patient and pause before considering additional rate increases.
“I am mindful that the effects of past policy actions have not yet fully played out, calling for patience in considering our policy actions,’’ George said in a speech in Kansas City, Missouri. “A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable.’’
George’s remarks, contrasting with calls for more tightening over the past seven years, suggest Fed Chairman Jerome Powell is likely to win easy support in his call for caution in raising rates. While the Federal Open Market Committee in December penciled in two rate hikes for 2019, Powell and other Fed leaders have since stressed there’s no hurry to move with volatile markets, low inflation and slowing global growth.
Near Neutral
The Fed raised borrowing costs four times last year and rates seem to be approaching a point near neutral, which neither stimulates nor restrains the economy, according to George, who votes on monetary policy this year. Because hiking has a delayed impact on the economy, “failure to recognize these lags could lead to an overtightening of policy, a downturn in economic growth and an undershooting of our inflation objective,’’ she said.
In addition, it’s hard to gauge the impact of the Fed’s policy to shrink its balance sheet as Treasury and mortgage-backed securities mature, she said.
While the 3.9 percent jobless rate is below the Fed’s estimate of full employment, inflation has remained subdued, she said.
“It is possible that some additional rate increases will be appropriate,’’ she said. “But making that judgment is not urgent and should depend on a careful look at the data and gathering additional insight into where our destination is, how much further we need to go to reach it and how quickly we should get there.’’
George said her view on additional rate hikes will depend on how inflation unfolds.
“If, for example, the inflation outlook remains benign despite tight labor markets or if the downside risks I spoke of earlier materialize, we can pause the normalization process,’’ she told the Central Exchange, a group that promotes leadership development among women. “On the other hand, if inflation pressures emerge, it would suggest we are further away from neutral than we may have previously thought and further interest rate increases could be necessary.’’
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Written By: Bloomberg
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