Tags: federal reserve | esther george | easing | taper

Fed's George: Central Bank Eroded Credibility by Not Tapering

Friday, 20 Sep 2013 01:30 PM

 

A hawkish Federal Reserve policymaker on Friday sharply criticized her colleagues' decision this week not to reduce the Fed's bond-buying program, warning that the U.S. central bank's credibility is now at risk given how convinced were financial markets that policy would be adjusted.

Kansas City Fed President Esther George, the lone dissenter on Wednesday's policy decision, said she was "disappointed."

She noted the "costly steps taken to prepare markets" in recent months for a policy change, and warned that the Fed has sowed confusion about its intentions.

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"Waiting for more evidence at this point in the face of continued economic growth unnecessarily discounts the very real progress that we see, and it also discounts the potential costs of the policy tool with which we have limited experience," George told a meeting of the Shadow Open Market Committee, a group critical of the Fed's easy-money stance.

"We will continue to add to that balance sheet ... and the conditions will remain for some time that allow risk and imbalances to grow," she said, adding that the Fed "faces ahead of it some difficult moves."

The central bank surprised financial markets globally this week when it decided to keep buying $85-billion worth of bonds per month. It cited fiscal headwinds and tighter overall financial conditions as reasons to continue its aggressive support for the U.S. economy.

George has dissented at every policy meeting this year and did so again this week because the low-rate policy could lead to asset-price bubbles.

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