Fed's George Says Financial Turmoil No Reason to Slow Rate Rises

Worried About Growth? You're Not Alone
  • Kansas City Fed chief: policy `cannot respond to every blip'
  • George says U.S. resilient, even as some energy states hurting

Federal Reserve Bank of Kansas City President Esther George said recent financial-market turmoil should not have been surprising and is no reason to delay further interest-rate increases.

“While taking a signal from such volatility is warranted, monetary policy cannot respond to every blip in financial markets,” George, who votes on policy this year, said in prepared remarks in Kansas City, Missouri. “The recent bout of volatility is not all that unexpected, nor necessarily worrisome, given that the Fed’s low interest rate and bond-buying policies focused on boosting asset prices as a means of stimulating the real economy.”

George supported the Federal Open Market Committee decision last week to keep interest rates unchanged.

The panel said it is “closely monitoring global economic and financial developments” while assessing their implications for the labor market and inflation, and for the balance of risks to economic prospects. That indicated concern about the outlook compared to December, when it said risks were “balanced.”

Speaking to the Central Exchange, a group that promotes leadership development for women, George said the recent decline in oil prices and strengthening of the dollar could slow U.S. growth but don’t change the overall forecast for continuing expansion.

“Despite these headwinds, the U.S. economy has proven itself to be resilient to a wide range of shocks in recent years, including sluggish growth abroad,” she said.

George, who has consistently been among the most hawkish Fed officials, said last December’s interest-rate hike, the first such move since 2006, was belated and cautioned it would be a mistake to wait too long to raise rates further.

“Because monetary policy affects the economy with lags, decisions must necessarily rely on forecasts and their associated risks -- not waiting until desired objectives are realized,” she said. “If we wait for the data to provide complete confirmation before making a policy decision, we may well have waited too long.”

George noted the regional economy had been hurt by the recent decline in oil prices, with, for example, unemployment claims rising in Oklahoma. The Kansas City district represents Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

“We know lower oil prices benefit consumers, but also weigh on oil producers,” she said. “We have certainly seen energy-intensive states affected.”

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