MNI POLICY: Fed's George Supports Gradual Rate Increases

By Jean Yung

     WASHINGTON (MNI) - Having largely achieved its dual mandate, the Federal

Reserve should continue its campaign of gradual interest rate increases to

prolong the economic expansion, Kansas City Fed President Esther George said

Thursday. 

     The following are key points from her remarks prepared for an economic

forum in Tulsa, Okla. 

     --Gradual policy normalization through rate hikes and a shrinking balance

sheet appropriately balances risks to the outlook. "This gradual normalization

of policy seems appropriate to me given that the FOMC's employment and inflation

objectives have largely been achieved while the current setting of its overnight

interest rate target remains below estimates of its longer-run value."

     --The accommodative stance of monetary policy that has prevailed, even as

the unemployment rate has fallen below estimates of its long-run sustainable

level, could push inflation "somewhat higher" over the next couple of years. But

she said it's reasonable to expect "low and stable inflation for the next few

years." 

     --The economy's limited reaction to changes in oil prices is quite

different today compared to the 1970s and '80s. "The inflationary effects are

viewed as temporary rather than persistent because of the anchoring of inflation

expectations around 2 percent."

     --On balance, fiscal tailwinds and robust consumer and business spending

should prolong the expansion. "Accommodative financial conditions, elevated

levels of confidence and solid labor markets" should culminate in "economic

growth slightly above trend with low and stable inflation." 

     --Recent dollar appreciation, possible retaliatory tariffs and a slowdown

in emerging market economies could cause net exports be a "modest drag" on

overall growth, but she expects domestic demand to "remain strong" and reinforce

the outlook for a tight labor market. 

     George will not vote on rates in the November and December FOMC meetings,

but will be a voter in 2019.

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

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