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

Repeats Story Initially Transmitted at 12:32 GMT Aug 24/08:32 EST Aug 24
--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
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com

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