MNI POLICY: Fed's George: Not Ready To Back Yield Curve Caps

By Evan Ryser

     KANSAS CITY (MNI) - Kansas City Fed President Esther George is not ready to

endorse controlling the yield curve as a way to counter any downturn and bring

inflation back to target. 

     George said Tuesday policymakers are "likely to find themselves looking

deep into the policy toolkit to fight future recessionary shocks."

     Asked by the audience what tools would be needed in a downturn and whether

that includes quantitative easing and forward guidance, George said: "In a

perfect world neither of those are completely satisfactory to us, but obviously

there are things ... that would be more familiar."

     The Fed is in the middle of a review of its monetary policy strategy,

tools, and communications that is due to be wrapped up in mid-2020.

     George said the discussion of the tools would begin with their history.

"What do we think our communications could accomplish, call it 'forward

guidance'? What do we think doing QE could accomplish?"

     Asked whether she found the use of yield curve control appealing, she

replied: "I don't know." 

     George noted there has been a lot under discussion, including the option to

set the difference between short-term and long-term rates as in Japan. 

     "All those bring consequences that require a lot more conversation before I

would want to advocate for them." 

     Whereas quantitative easing focuses on quantities of bonds, yield curve

control takes aim at their price, with the central bank buying to ensure rates

do not surpass its target. And while the Bank of Japan's policy has included

targeting the 10-year JGB, some Fed officials have focused on the near end of

the curve.

     Fed Vice Chair Richard Clarida said in February the Fed "will consider"

yield curve control and Governor Lael Brainard has indicated she is partial to

the tool. 

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

[TOPICS: MMUFE$,M$U$$$,M$$FI$,MN$FI$]