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Fed's George sees risk in waiting to raise interest rates

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The Federal Reserve may stumble into a "trap" if it continues waiting for more data to justify an initial interest rate increase, risking a quick takeoff of inflation or other problems, Kansas City Fed Bank President Esther George said on Thursday.

[STILLWATER] The Federal Reserve may stumble into a "trap" if it continues waiting for more data to justify an initial interest rate increase, risking a quick takeoff of inflation or other problems, Kansas City Fed Bank President Esther George said on Thursday.

Ms George, who has been arguing for several months that it was time for rates to rise, said it was clear the US economy is on a solid path, with above-trend growth expected for the rest of the year and job gains comparable to other periods of economic expansion. "The economic data point generally to an economy that is moving in the right direction and has consistently sustained growth for five years," she said in prepared remarks for a speech at an Oklahoma State University economic forum.

"Waiting for more data before acting can be a trap. More data is always on the way." "We would be wise to act modestly but act now." Ms George does not vote on the Fed's main rate-setting committee this year, but has been consistent in pressing for an earlier rate hike.

She did, however, say that the US central bank should only raise rates gradually once "liftoff" begins, a position that has broad support among Fed policymakers.

The Fed is currently expected to raise rates at its September policy meeting, moving from the near-zero level it has maintained for six years in response to the 2007-2009 recession and its aftermath.

Many at the Fed have argued that rates should be kept at the near-zero level until the economy is clear of potential overseas shocks and the labour market is fully recovered from problems like the still-elevated numbers of part-time workers.

But "monetary policy is not the proper tool to address all of these issues," George said. "Keeping interest rates near zero to achieve still further progress toward labor market improvement and higher inflation is risky in my view."

REUTERS