Fed's George: U.S. Economy Is in 'Good Place'

Kansas City Federal Reserve President Esther George dissented against the central bank’s quarter-percentage-point rate cuts made in July and September. Photo: handout/Reuters

Kansas City Federal Reserve leader Esther George said Sunday she isn’t worried about low inflation levels right now, in comments that show the official skeptical but open to the need to lower rates again.

“The U.S. economy is currently in a good place with low inflation, low unemployment, and an outlook for continued moderate growth,” Ms. George said in text for a speech before the National Association for Business Economics Annual Meeting in Denver.

Ms. George, who dissented against the Fed’s quarter-percentage-point rate cuts made at the July and September Federal Open Market Committee meetings, didn’t rule out supporting another rate reduction if it happens. But she appeared skeptical over the need for further action.

Referring to the latest Fed two meetings, Ms. George said, “with moderate growth, record-low unemployment and a benign inflation outlook, maintaining an unchanged setting for policy would have been appropriate, in my view.”

But she added, “There are certainly risks to the outlook as the economy faces trade-policy uncertainty and weaker global activity.”

“Should incoming data point to a broadly weaker economy, adjusting policy may be appropriate to achieve the Federal Reserve’s mandates for maximum sustainable employment and stable prices,” she said.

Ms. George has dissented against the Fed consensus more than she has voted with it, according to data from Wrightson ICAP. Over recent years, Ms. George has warned that low short-term rates were risking an inflation surge and unsettled financial conditions. Neither of those things has come to pass so far.

The Fed has consistently failed to reach its 2% inflation target since adopting it in 2012. The Fed’s latest two rate cuts have been aimed at providing insurance against rising risks from trade and slower global growth while providing some stimulus to help get price pressures back to desired levels.

Ms. George repeated from earlier remarks that in real-world conditions she rarely hears of concerns that inflation is too low. The veteran Fed official opposes using monetary policy to fine-tune inflation to 2%.

“Muted inflation alone would not warrant a policy response,” Ms. George said. “Rather than focusing too narrowly on achieving a precise point target of 2% inflation, I find it more realistic to accept that there will be both temporary and persistent fluctuations around this long-run target and, as long as they don’t exceed a reasonable threshold—perhaps as big as 50 or even 100 basis points—they should be tolerated, depending on broader economic conditions,” the official said.

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