[WASHINGTON] Kansas City Fed President Esther George on Friday said she believes the Fed should raise interest rates soon so that it will "have the luxury" of being able keep rate hikes gradual.
"I think the conditions are there" for the Fed to begin to lift rates from near zero, Ms George said in Omaha, Nebraska at the Aksarben Stock Show and Rodeo. "Waiting for perfect conditions is not a realistic approach to making decisions about interest rates ... You cannot afford to get into a state of paralysis around looking for data that might continue to reassure you. So when conditions warrant, as I believe they do today, I think interest rates need to adjust."
Ms George has long voiced worries that near-zero rates spur financial markets to take on too much risk, and on Friday reiterated those concerns.
She said she continues to expect moderate US economic growth, called progress in labor markets "remarkable," and is seeing signs already that inflation is firming. "Even with a rate increase, monetary policy will remain highly accommodative for some time," she said. "This is why I support and have for some time this year a move off of zero." The Fed decided last week against raising rates, citing low inflation and concerns about global growth and financial conditions. The decision was described as "close" by several Fed officials.
Ms George said that neither the strong dollar, nor the drop in oil prices, nor the state of the Chinese and other emerging market economies had shaken her faith in the trajectory of the US economy. Fed chair Janet Yellen has pointed to each of those factors as reasons for caution, saying in particular she wants to have more confidence that inflation is heading higher and that growth will continue. "There is always a temptation to want to see more data, to think that waiting a little bit longer might clear things up,"George said. "My experience is it is rarely ever so." Ms George does not vote on Fed policy but participates in regular policy-setting meetings.