12/02/2013 18:59:00

Kansas City Fed's George Warns About Current FOMC Policy

By Ben Kesling

OMAHA, Neb.--The lone dissenting voice on the Federal Open Market Committee defended her hawkish philosophy Tuesday and reiterated her call for the Federal Reserve to proceed cautiously with easy money policies.

Kansas City Federal Reserve President Esther George laid out her reasons for dissenting from current Fed monetary policy in a speech at the University of Nebraska Omaha on Tuesday morning, explaining her opposition to the FOMC's current policy position.

"While I share the objectives [of the FOMC]," Ms. George said, "I dissented because of possible risks and the possible costs of these policies exceeding their benefits...While I have agreed with keeping rates low to support this recovery, I know keeping interest rates near zero has its own consequences."

Ms. George took over as president of the Kansas City Fed in October 2011 and became a voting member of the FOMC in January. She continues the hawkish legacy of her immediate predecessor, Thomas Hoenig who was known for his long-time disagreement with easy money policy in his 20-year tenure at the head of the bank.

In her speech Tuesday, she warned that by keeping rates low, the Fed is pushing banks and investors to seek out high-yield investments that can be risky, especially as those investments take up more and more space on financial institutions' balance sheets.

"It is very difficult to identify the point where a healthy shift towards risk becomes excessive and potentially damaging," she said.

Ms. George also cautioned that the Fed will need to eventually sell the mortgage-backed securities that it is currently adding to its balance sheet and that an active selloff could cause "an unwelcome rise in mortgage interest rates."

"I approach these decisions with a healthy dose of humility," she said.

Her predecessor, Mr. Hoenig was an outspoken hawk who often warned that low interest rates, or easy money, might lead to price bubbles and accelerated inflation. He dissented at all eight of the meetings of the FOMC in 2010, the last time the Kansas City Fed had a voting seat.

January was the first FOMC meeting at which Ms. George was eligible to vote, and she was the lone dissenting voice to the current Fed policy of buying $85 billion a month of mortgage-backed and Treasury securities, and keeping interest rates low in the hopes of fueling economic recovery. The Fed has said it aims for an unemployment rate of 6.5% as long as inflation remains at less than 2.5%.

But if the Fed fumbles its inflation goals and allows rates to rise too much it could jeopardize the reputation of the institution, she said.

"It's important that people not only understand the institution but that they have trust in the institution," she said. "The credibility of the Federal Reserve is critical."

Ms. George, after just one vote on the FOMC, looks like she will continue to put up a vigorous fight to rein in easy money, but that doesn't mean she is convincing any of her voting peers, and a lone dissenting voice will not change policy.

The three heaviest hitters on the FOMC: Fed Chairman Ben Bernanke, Federal Reserve Vice Chairman Janet Yellen and New York Fed President William Dudley are all steadfast supporters of current policy.

On Monday, Ms. Yellen, spoke to the AFL-CIO and reiterated that the Fed is leaning hard into easy money policies. "We have our foot not only on the gas, but really pressed to the floor," she said. Ms. Yellen is considered a likely choice to replace current Mr. Bernanke and to push to continue his policies.

Although she is the sole dissenting voice, other Fed presidents have said they are concerned about FOMC polices. Speaking at a panel at the University of Chicago in December, Charles Plosser, President of the Philadelphia Fed, who doesn't have a vote on the FOMC, said the central bank needs to be "a little more humble, and be cautious about the consequence of [its] actions."

James Bullard, St. Louis Fed president, who does have a vote, said in January that he has some concern about the debt the U.S. government is racking up with its current bond buying program. "That's more than a trillion dollars annually," he said. "I'm in the business and even I think that's a big number."

Ms. George is a long-time Kansas City Fed employee who first started working there in 1982. Beginning in 2001 she oversaw the bank's division of supervision and risk management, regulating banks and financial institutions in the tenth district, which includes western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico. In 2009, she was appointed chief operating officer and first vice-president, a position she held until taking over at the bank.

Write to Ben Kesling at:benjamin.kesling@dowjones.com

(END) Dow Jones Newswires

February 12, 2013 13:59 ET (18:59 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

Post comment

Related debate

  • 1 week
  • 1 month
  • 1 Year
28 Jul
FLS
Dine bud på aktien svinger sgu betydeligt mere.......så foreslår vi får skiftet dig ud.
25
23 Jul
OMXC20
  I EPS og cash flow del 1 gennemgik jeg de udfordringer, der er ved anvendelsen af disse til brug f..
22
26 Jul
VALE
  Måske ikke helt korrekt aktiemarkering, for det handler ikke om Vale specifikt. Jeg finder, som t..
21
28 Jul
VWS
  Hej Debattører på Euroinvestor       Lad det være sagt med det samme. Jeg har lånt nogle Vestas ak..
18
23 Jul
OMXC20
Kasper, nej...................   Inden man i det hele taget skal foretage vurderinger som disse ( in..
18
24 Jul
I:DJI
Forleden var der heftig debat om trackrecord, hvor Alfinvest, Mena m.fl. forsøgte at overgå hinanden..
17
28 Jul
VWS
Hej Maui,   Tak for et nuanceret indlæg, med en meget fin beskrivelse af dine tanker omkring Vestas ..
16
23 Jul
OMXC20
Jeg forstår ikke hvorfor smainvestorer tror, at de skal gakke hen og gøre som Warren Buffet. Det kan..
16
24 Jul
VWS
Kunne man forestille sig at Barcleys ved mere om PTC ordningen og hvordan det normalt foregår, end v..
13
29 Jul
OMXC20
Delfin har et indlæg om Varoufakis fra Lars Tvede som 10 personer har tomlet op. Læren er at Varoufa..
12

Form 8.3 - Royal Dutch Shell plc

29/07/2015 14:49:42
FORM 8.3 PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% OR MORE ..

Form 8.3 - RSA Insurance Group Plc

Related news
29/07/2015 13:38:05
FORM 8.3   PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% O..

Form 8.5 (EPT/RI) - Bwin Party Digital Entertainment plc

29/07/2015 09:15:48
FORM 8.5 (EPT/RI) PUBLIC DEALING DISCLOSURE BY AN EXEMPT PRINCIPAL TRADER WITH RECOGNISED INTERMEDIARY STATUS DEALING IN A CLIENT-SERVING CAPACITY..

Most read news

  • 24 hours
  • 48 hours
  • 1 week
1
ATOS : First half 2015 results
2
Marathon Petroleum Corporation Announces Election of New Director
3
Coface SA : Communication setting out the arrangements for the supplying of the Interim Financial Report for the first half of 2015
4
Solvac fully supports Solvay's proposed acquisition of Cytec
5
Aéroports de Paris :welcomes the agreement with the government on the draft 2016-2020 Economic Regulation Agreement

Buy and sell signals

  • Trend
  • Moneymachine

Copyright Euroinvestor A/S 2015   Disclaimer and Terms of Use
Quote information is delivered by Interactive Data.
Data is delayed 15-20 minutes according to the distribution agreements set by the different exchanges.
 
30 July 2015 05:02:21
(UTC) Dublin, Edinburgh, Lisbon, London
Version: LiveBranchBuild_20150716.1 - EUROWEB5 - 2015-07-30 06:02:21 - 2015-07-30 05:02:21 - 1000 - Website: OKAY