Fed's George: Economy Ready for Rates to Be Above Zero

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Aug. 21 (Bloomberg) -- Federal Reserve Bank of Kansas City President Esther George comments on the future of Fed monetary policy. She speaks with Mike McKee in Jackson Hole, Wyoming. (Source: Bloomberg)

If it continues the progress we see to begin to lift off of zero and to begin to have more normal interest rates as we go forward.

X the chair has suggested you wait a while because labor markets are not healed enough.

Many of those who would oppose her argue that it is on inflation danger, but what is the inflation that we should fear?

Inflation today looks to be stable, but you have to look ahead.

We have to be prepared to see where the economy is going and not where it is today.

I think in that sense as we see the progress being made, 6.2% unemployment, not far from what may be full employment, inflation looks to be stable.

I think there is every reason to think we should start talking about normalization.

Are you worried about an overshoot of inflation at this point?

Inflation can move in funny ways.

We see components of inflation that are particularly healthy now with food and rent, even though the overall measures look calm, but as we know from history, those can change depending on the momentum of the economy.

X janet yellen can make a reasonable case that the fed increased aggregate demand with its extraordinary policies, but as those policies are withdrawn, is that demand going to be self-sustaining?

Well, that is one of the things the committee will have to judge at the point of its decision to lift off of zero interest rates, and as we have looked at the performance of the economy over the last year, i think there are encouraging signs with both the job market, with how consumer spending has held up that would lead us to think we might be getting close.

Of the fed did maybe contribute to aggregate demand, but that demand has been weaker than the previous recoveries.

The labor markets remain weaker than in previous recoveries.

Does that tell you the fed has pre-much done all it can do to stimulate the economy at this point?

I think we have seen -- i mean, this recession was not like some past recessions, either, in terms of its consequence to the economy.

So the transmission of monetary policy has been different this time in an economy where there was too much debt.

The appetite to take on debt has been different.

And i think now as we look at the healing we have seen in the economy and that progress, we are in a good place to begin talking about normalization.

One of the concerns you raised in your dissented last year was about market stability, financial market stability.

A lot of people worried about what happens when qe ends, when the fed starts talking about raising rates.

Is that still a major concern for you, or do you think markets have absorbed that the process is coming to an end?

It looks like so far that between two medications from the committee, the market has responded, and the fed has not reacted to some movements in data we have seen.

They have kind of kept a more long-term focus, so so far, so good.

When we move into the next phase of our stance of monetary policy, there could be some volatility.

We have been at low for a long time, so it would be important to communicate and to be communicating how the the path of interest rates will go.

Where are you on the debate over whether the fed should sell off parts of its balance sheet?

Well, we have a very large balance sheet right now, and the process of unwinding is something the committee has been talking about, and it has complicated the process of monetary policy.

The issue about whether to reinvest the maturities on that bond portfolio have range from whether you do it before liftoff, whether you do it after.

My objective and the principles that were laid out in the minutes is to return the balance sheet to the smallest size we can, to conduct policy, and to return to an all church -- and all treasury balance sheet.

Bloomberg television will have continued coverage of the fed meeting in jackson hole.

Tune into more with michael mckee's interview with federal reserve bank of kansas city chair esther george.

What a fabulous interview,

This text has been automatically generated. It may not be 100% accurate.


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