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Fed's George Calls for Further Gradual Rate Increases

--No Mention of Inflation Trends
By Jean Yung
     WASHINGTON (MNI) - Further gradual interest rate increases are needed to
sustain the economic expansion and contain financial stability risks, Federal
Reserve Bank of Kansas City President Esther George said Thursday. 
     "With an economy growing at an above-trend rate and unemployment at a low
level, postponing the removal of accommodation poses risks to sustainable growth
and financial stability," she said in remarks prepared for a conference on the
American workforce in Austin, Texas. 
     "At this stage of the expansion, it is appropriate to move cautiously. But
waiting too long risks more aggressive moves, which, history shows can invite
prospects of recession." 
     Policy is very accommodative right now, and prolonging that risks
distortions in capital allocation toward "less fruitful, or perhaps excessively
risky, endeavors that could result in financial imbalances," she said. 
     "Moving interest rates at a gradual pace toward a level consistent with
longer-run growth is the best step to help promote a continuation of the
economic expansion," she said. George does not vote on rates this year. 
     She noted that the unemployment rate, at 4.4%, is already below estimates
of the natural rate of unemployment, but that there have been broad shifts in
labor force dynamics in the wake of the financial crisis. 
     Research by Kansas City Fed bank staff finds that the recent modest pickup
in labor force participation rate can be attributed to a decline in the number
of people exiting the labor force, especially among those 55 and older. 
     "This suggests that for older workers, the reduction in exits may indicate
that some workers were delaying retirement decisions," she said. 
     At the same time, employers are hiring both for more high-skill positions
that typically require a college education and for low-skill jobs, leaving a
vacuum in the middle. That means workforce development leaders face new
challenges on how to best equip workers with the skills in demand by employers,
George said. 
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]

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