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Fed's George Sees Another 2017 Rate Hike Despite Low Inflation

Image: Fed's George Sees Another 2017 Rate Hike Despite Low Inflation
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Thursday, 24 August 2017 09:26 AM

Federal Reserve Bank of Kansas City President Esther George said if U.S. economic data hold up, there will probably be an opportunity to raise interest rates again in 2017.

“I’ll be looking at the data in the next few weeks as we get ready for the September meeting, and see whether that still makes sense,’’ George said, referring to another interest-rate increase this year. “Based on what I see today, I think there’s still opportunity to do that,’’ she told Bloomberg Television’s Mike McKee in an interview recorded on Wednesday in Jackson Hole, Wyoming.

George, a policy hawk who has argued in favor of tighter policy to head off higher inflation, was speaking ahead of the annual gathering of central bankers she hosts in this remote mountain location.

Conference highlights this year include a speech by Fed Chair Janet Yellen at 8:00 am local time (10 a.m. in New York) on Friday, followed by a 1 p.m. address by European Central Bank President Mario Draghi. The gathering occurs against a backdrop of modestly improving global growth and lower unemployment, while inflation has failed to rise as expected.

The U.S. central bank is weighing when to start the gradual process of shrinking its balance sheet, with investors expecting an announcement at its Sept. 19-20 policy meeting after officials indicated that an announcement could be imminent. But the Fed is also monitoring inflation developments closely, after a spate of weak readings softened price pressures further below its 2 percent target.

“In the context of the economy that we have today, that’s why I think you have to be careful -- getting too focused on a point estimate as opposed to the broader trends that you see and the expectations that are out there,’’ George said of inflation. She allowed that economic models of how inflation responds to low unemployment may have broken down, but “whether we hit 2 percent on the nose is less important to me than understanding how the economy is doing more generally.”

The Fed’s preferred gauge of price pressures rose 1.4 percent in the 12 months through June and has been under the Fed’s goal for most of the last five years.

The median estimate in Fed officials’ quarterly forecasts, which will be updated next month, project another interest-rate increase in 2017 after hikes in March and June. Investors see a roughly one-in-three chance of another move by the December meeting of the rate-setting Federal Open Market Committee, according to interest-rate futures pricing.

“We should begin to -- as we’ve indicated -- gradually removing that accommodation, as long as the outlook supports that we are moving in the right direction, and I think we are,’’ George said. She said she supports starting balance sheet run-off, and “the estimates suggest the economy is in a good place to begin doing that.”

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Federal Reserve Bank of Kansas City President Esther George said if U.S. economic data hold up, there will probably be an opportunity to raise interest rates again in 2017.
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2017-26-24
Thursday, 24 August 2017 09:26 AM
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