EL RENO, Oklahoma |
EL RENO, Oklahoma (Reuters) – Ultra-easy Federal Reserve policy risks financial instability and future inflation, Kansas City Federal Reserve President Esther George warned on Thursday, as she explained her decision to dissent at her second meeting in a row last month.
Noting that recent data on the state of the labor market had been encouraging, and the recovery seemed to be on track for a gradual recovery, George said growth remained slow.
“To be clear, I support an accommodative stance of monetary policy while the economy recovers and unemployment remains high,” she told a luncheon audience in this energy production and farming community to the west of Oklahoma City.
“But I view the current policies as overly accommodative, causing distortions and posing risks to financial stability and long-term inflation expectations with the potential to compromise future growth,” she said in prepared remarks.
George, who has dissented at both Fed policy-setting meetings this year, said her decision was driven by concern that “emergency” Fed action which remains in place four years after the end of the recession carried significant risks.
“In raising these issues, it is not my goal to prematurely withdraw support,” said George, who was the lone dissenter at both meetings. “It is critical, however, to ensure we transition from a crisis-type policy stance of aggressive easing to one of accommodation that allows markets, households and businesses to begin to normalize their expectations for interest rates.”
The central bank last month voted to maintain bond purchases at a $ 85 billion monthly pace while vowing to hold interest rates near zero until unemployment hit 6.5 percent, so long as the outlook for inflation did not rise above 2.5 percent. The U.S. jobless rate in February was 7.7 percent.
“I am concerned that with the adoption of thresholds for inflation and unemployment, the FOMC (Federal Open Market Committee) has expressed some tolerance for having the inflation outlook exceed 2 percent,” George said.
With low unemployment and buoyant energy and commodity markets in its district, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and parts of Missouri and New Mexico, the Kansas City Fed has spotlighted high farmland prices as a potential asset bubble, as well as low junk bond yields.
Other Fed officials, including Boston Fed chief Eric Rosengren, have argued recently that these potential spots of strength are best tackled by supervision, rather than easing back on monetary policy to dampen the entire economy. George pushed back hard against this suggestion.
“Asking bank regulators and supervisors, or the newly tasked monitors of financial stability, to single-handedly identify and contain the risks introduced by a highly accommodative monetary policy is not realistic,” she said.
(Editing by Andrea Ricci)
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Fed"s George, defending dissent, says Fed policy too easy
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