Fed's George says interest rates are too low

[WASHINGTON] The Federal Reserve is keeping interest rates too low and risks encouraging companies to take on excessive amounts of debt, Kansas City Fed President Esther George said on Thursday.

Fed policymakers generally agree they should raise rates gradually but Ms George dissented at the last two policy meetings, arguing for hikes, and her comments on Thursday suggest weak economic growth in the first quarter has not changed her mind.

"I support a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for today's economic conditions," Ms George said in prepared remarks for a luncheon with business and community leaders in Albuquerque, New Mexico.

The Fed tightened policy in December, ending seven years of near-zero interest rates, but has since held them steady. Investors anticipate one rate increase this year although policymakers have signaled two hikes will likely be needed.

Ms George warned that keeping rates too low for too long carries risks for the economy.

"Interest-sensitive sectors can take on too much debt in response to low rates and grow quickly, then unwind in ways that are disruptive," she said.

REUTERS