Federal Reserve Bank of Kansas City President Esther George said she’s encouraged by broad-based employment gains that show the world’s largest economy is strong enough to withstand higher interest rates.
“We have seen significant progress in the labor market over the last three years, and particularly this year,” George said in a Bloomberg Television interview in Jackson Hole, Wyoming. “As we look at the healing we’ve seen in the economy and that progress, we’re in a good place to begin talking about normalization.”
George, who is hosting a three-day Fed symposium in the Rocky Mountains starting today, said policy makers have “every reason” to think about beginning to raise the benchmark interest rate above zero, where it’s been since December 2008. She dissented against seven of eight FOMC decisions last year and will vote again on policy in 2016.
Minutes of the July Federal Open Market Committee meeting released yesterday showed Fed officials raising the possibility that they might increase rates sooner than they anticipated as they approach their goals for full employment and stable prices. Some participants “were increasingly uncomfortable” with forward guidance on keeping rates low for a “considerable time,” according to the minutes.
The jobless rate was 6.2 percent last month after falling in June to a five-year low of 6.1 percent, a level policy makers had forecast it wouldn’t reach until the end of the year.
The jobless rate now is “not far from what may be full employment,” George said.
“Some of the policy benchmarks that we looked at and have been looking at for some time are already signaling that we should be above zero interest rates,” George said.
George said volatility in financial markets may increase as the Fed moves toward tighter policy.
“When we move into the next phase of our stance of monetary policy, there could be some volatility,” she said. “We’ve been at lows for a long time, and so it will be important to communicate and to be communicating how the path of interest rates will go.”
George also said prices for agricultural land are moderating. In the past, she has said they may be at unsustainably high levels because of unprecedented Fed accommodation.
“Farmland prices have cooled at a high level, and that has been in the face of projected declines in farm income,” she said.
This year’s symposium at Jackson Hole, which is in George’s district, is titled “Re-evaluating Labor Market Dynamics.” Fed Chair Janet Yellen will deliver a speech on labor markets tomorrow at 10 a.m. New York time. European Central Bank President Mario Draghi will speak at 2:30 p.m.