MNI POLICY: Fed's George: Should Keep Rates On Hold For Now

By Jean Yung

     WASHINGTON (MNI) - Weak global growth and trade tensions are likely to

linger even as U.S. employment stays high and inflation low and stable, arguing

for the Federal Reserve to keep interest rates steady, Kansas Fed President

Esther George said Tuesday. 

     "Policymakers will need time to judge the proper stance of policy," she

said in remarks prepared for a conference hosted by The Central Exchange at the

bank. 

     Whether the three rate cuts in 2019 will need to be reversed, retained or

if the Fed will need to ease policy further remains uncertain, she said, while

reminding the audience she opposed the rate cuts last year.  

     If headwinds fade it would be appropriate to raise rates, she said. On the

other hand, "the 2019 rate cuts may turn out to be a reset to a more neutral

policy stance, recognizing that the equilibrium federal funds rate may be lower

than previously assumed." 

     "It could be the case that downside risks and uncertainties persist in a

way that keeps investment spending weak and spills over to the consumer,

altering the modal outlook and requiring further policy easing," she said.

     "Keeping rates on hold for now is appropriate in my view as we assess the

economy's response to last year's rate cuts," she said. 

     --Framework Evaluation

     Persistently low inflation, possibly driven by global structural factors,

has made it difficult for central banks to achieve their inflation targets by

pushing the unemployment rate down.

     With limited policy space to lower the fed funds rate, "policymakers are

likely to find themselves looking deep into the policy toolkit to fight future

recessionary shocks," George said. 

     The Fed is soon to conclude a yearlong evaluation of its monetary

framework, which seeks longer term solutions to using different tools to address

future downturns. 

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

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