MNI: Fed's George Expects Policy Rate To Rise To 2% By August

Federal Reserve Kansas City Fed President Esther George said Monday she expects the central bank's policy rate to move up by about 1 percentage point by August, and subsequent policy moves to be determined by evidence that inflation is clearly decelerating.

"I expect that further rate increases could put the federal funds rate in the neighborhood of 2 percent by August, a significant pace of change in policy settings," she said in remarks prepared for the Kansas City Fed Agricultural Symposium. "Balance sheet reduction plans will also be underway as a tightening mechanism, with financial markets far more unsettled currently than in 2017, when the Fed last initiated a rundown in the size of its balance sheet."

"Evidence that inflation is clearly decelerating will inform judgments about further tightening," said George, of the Kansas City Fed, which is hosting its Jackson Hole Symposium August 25-27. This year's theme is "Reassessing Constraints on the Economy and Policy."

Some Fed officials have begun striking out a position for how they see policy in September. Cleveland Fed President Loretta Mester told MNI last week she would favor larger rate increases if inflation failed to come down by September, while some other Fed officials have noted the potential for a pause.

Faster increases in production, perhaps as supply chains continue to untangle or as a greater number of workers return to the labor force, could relieve pressure on prices as monetary policy tightens, George said.

"On the demand side, if, as appears increasingly likely, the war proves a major drag on global growth, or if Covid lockdowns substantially dent growth in China, then lower demand might take some of the heat out of inflation," she added.