Fed's George Urges FOMC to Keep March on the Table for Rate Hike

  • Recent volatility hasn't changed the outlook thus far: George
  • Says she doesn't see negative interest rates warranted in U.S.

Esther George.

Photographer: Ron Antonelli/Bloomberg

Federal Reserve policy makers should be prepared to consider raising interest rates in March despite recent financial market volatility, said Kansas City Fed President Esther George, whose outlook for solid growth this year remains intact.

“It absolutely should be on the table” at the next meeting, George told Pimm Fox and Kathleen Hays in a Bloomberg Radio interview Tuesday from the bank. “At this point I would not say that the data have suggested there has been a fundamental shift in the outlook.”

The policy-setting Federal Open Market Committee is weighing how fast to raise rates this year, balancing concern over market turmoil and slowing economies globally with indications that U.S. inflation may be picking up. The median projection of FOMC members submitted at the December meeting, at which officials lifted rates for the first time in nearly a decade, called for four additional quarter-point increases in 2016.

“It is clear the markets have taken that off the table,” said George, a voting member of the FOMC in 2016. “Policy makers have to look at what are the fundamentals of the economy.” Investors currently view the probability of a single rate rise in 2016 at around 45 percent, according to trading in federal funds futures contracts. The FOMC next meets on March 15-16.

Right Direction

The U.S. economy is on pace to grow at around 2 percent this year, led by stronger consumer spending and an improving labor market, with inflation “stable and moving in the direction” of the Fed’s 2 percent target, George said.

“My objective is to remove some of the accommodation” and move to a more neutral interest rate, George said. Neutral refers to Fed rates that are neither stimulating nor cooling economic activity.

George, who has consistently been among the most hawkish Fed officials, said in a speech this month that 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.

The cost of living excluding fuel and food increased in January by them most in four years, a Labor Department report showed Friday. The report bolsters the view of central bankers that the plunge in oil prices will prove to be transitory, with price gains likely to return to the Fed’s goal over time.

The Kansas City Fed chief said the central bank should have started raising rates earlier, which would have made it easier to move at a gradual pace toward neutral.

Negative Rates

She also played down the prospect of seeing negative interest rates in the U.S., which central banks in Europe and Japan have imposed as a way to drive inflation higher.

“I am not contemplating negative interest rates in the United States,” George said.

The committee said last month it was “closely monitoring global economic and financial developments” while “assessing their implications” for the economy and balance of risks to the outlook.

The Fed’s preferred gauge of inflation has remained under its 2 percent goal since April 2012 and rose 0.6 percent in the year through December. A further decline in crude oil prices to about $30 a barrel has further reduced the outlook for a pickup in prices this year, and prompted St. Louis Fed President James Bullard to warn that inflation expectations may be coming down too much.

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