Fed's George: Good Time to Begin Cutting Bal Sheet -Press

--Sees Opportunity to Raise Rates Again Before Year-End

--Cautions Individual Data Reports Belie Broader Trends That Support Tightening

--Easing Financial Conditions Point To Need to Adjust Balance Sheet

     WASHINGTON (MNI) - Federal Reserve Bank of Kansas City President Esther

George backs an imminent decision to begin trimming the Fed's asset holdings and

sees opportunity to raise interest rates again before the end of the year, she

said in interviews Thursday. 

     Speaking on the sidelines of her bank's annual economic symposium in

Jackson Hole, George told CNBC, Bloomberg Television and Fox Business News in

interviews aired simultaneously that individual data points may confuscate

broader trends that support continued policy normalization. 

     Labor markets are tight and the economy's overheating over the longer term

is a concern, and interest rates should reflect that, she said. 

     The Federal Open Market Committee in June forecast one more 25 basis point

rate hike for the year, and George said supports the direction in which the

committee is moving. 

     "I'll be looking at the data in the next few weeks as we get ready for the

September meeting to see whether that still makes sense," she told Bloomberg.

"Based on what I've seen today I think there's still opportunity to do that." 

     Pressed on whether the FOMC could hike in its next meeting in September, a

move the market currently views as extremely unlikely, George said: "I don't

pick a meeting and I don't consider that rate path and those projections a

commitment. I think it is a general sense of where rates should go." George is

not a voter on the FOMC this year. 

     By contrast, George was confident that now is a good time to begin the long

and gradual process of shrinking the Fed's $4.5 trillion asset holdings, saying

loose financial conditions call for a reversal of the quantitative easing the

Fed undertook in the wake of the financial crisis.

     "When you see that we've made four rate moves since December 2015 and

financial conditions have eased, that I think points to the idea that we need to

adjust the balance sheet. That's a tool we haven't had experience with, so I

think that's an important next step to be looking at that," she told Bloomberg. 

     She's been in favor of ending reinvestments "for some time" and the economy

is in a good place to do so, "so I'll look forward to the discussion in

September about that opportunity." 

     As the balance sheet begins to shrink, George said she hopes it will have

an impact on the yield curve, but "it's hard to know because we don't have

experience doing this," she said. 

     George also dismissed concerns over inflation losing steam. Despite a

string of softer than expected inflation reports in recent months, inflation

rates in service industries remain at 2% or higher, she said. 

     The price of goods is falling, "maybe that's due to technology" or a number

of other factors, she said on Bloomberg. "But when you look at services, which

is two-thirds of the economy, you see that those rates are actually staying at

2% and higher." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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