George’s Fed Dissent Reflects Financial Stability Concern

Federal Reserve Bank of Kansas City President Esther George dissented today in her first vote on the central bank’s policy committee because she was concerned that record stimulus may fuel the risk of financial instability and a surge in inflation.

George “was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations,” the Federal Open Market Committee statement said.

Since she became the leader of the Kansas City Fed in October 2011, George’s views have echoed those of her predecessor, Thomas Hoenig, who dissented from policy actions in 2010 and called for raising the benchmark interest rate from near zero. No first-time voter has dissented in recent decades, said Carnegie Mellon University professor Allan Meltzer, an economist and author of a two-volume history of the Fed from 1913 to 1986.

It’s “unusual and probably unprecedented to dissent on first vote,” Meltzer said. “President George recognizes that the policy is wrong” and that Fed stimulus isn’t bolstering growth, “unlike the throng cheering the policy on,” he said.

George has attended FOMC meetings for more than a year and gained a vote this month as part of an annual rotation of regional bank presidents.

Farmland Prices

Farmland prices in the Kansas City Fed’s district, which covers western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico, set records in the third quarter, according to the Fed bank’s Survey of Tenth District Agricultural Credit Conditions.

Non-irrigated cropland prices were up 25 percent from a year earlier and irrigated land values advanced more than 20 percent, according to the survey.

“Esther George’s dissent was not a surprise as the Federal Reserve Bank of Kansas City holds the view that the economy is in need of less stimulus than others,” said Wells Fargo Securities LLC senior economist Mark Vitner in Charlotte, North Carolina. “The region’s economy has been stronger and agriculture prices have been rising in the region. It makes a lot of sense.”

Low interest rates and stronger demand for agricultural commodities stoked a rise in land prices, George said Jan. 10 in a speech in Kansas City, Missouri.

“A prolonged period of zero interest rates may substantially increase the risks of future financial imbalances and hamper attainment” of the Fed’s 2 percent inflation goal, she told a civic group.

Prices “of assets such as bonds, agricultural land, and high-yield and leveraged loans are at historically high levels” and may signal market imbalances, George said.

George, 55, declined to be interviewed today. She was the Kansas City Fed’s No. 2 official under Hoenig, who retired and was later named vice chairman of the Federal Deposit Insurance Corp. She joined the Fed in 1982, spent much of her career in bank supervision and became first vice president in 2009.

Before it's here, it's on the Bloomberg Terminal.