KC Fed President Esther George warns of unknown risks with long-term low interest rates
Miriam PepperSteady slow growth of 2 percent is on the horizon economically this year, according to Esther George, president and CEO of the Kansas City Federal Reserve.
George offered her economic outlook today at The Central Exchange, an organization that promotes women in business and philanthropy in the Kansas City area.
George, the first woman president of the KC Fed, has impressive numbers of women executives in her offices, with seven of 10 top executive spots now held by women and one-third of the director seats filled by women.
On the economy, George characterizes the four-year recovery as slow and uneven, with still high unemployment of 7.8 percent.
As consumers have tightened their belts and reduced debt, the result is less consumer demand and constrained GDP growth. Simultaneously, corporations have conserved cash to strengthen their balance sheets.
What concerns her are the continuing “emergency” measures taken by the Fed to help the economy recover and the unknowns of consumers seeking higher returns in potentially risky investments.
As one of the five voting Fed presidents on monetary policy this year she may be a voice to call for changes.
With interest rates near zero and an announced intention to keep them low unless inflation heats up, George warned that she is keeping her eye on unknown risks that may be on the horizon.
While she clearly supported the Fed’s extraordinary moves during the worst of the recession, now she is concerned that a prolonged period of zero interest rates may “substantially increase the risks of future financial imbalances and hamper attainment of the 2 percent inflation goal in the future.”
Low interest rates are changing investors’ behavior as they reach for higher returns, possibly taking on new risks. “The longer-term consequences are not well understood.”
“Like others, I am concerned about the high rate of unemployment, but I recognize that monetary policy, by contributing to financial imbalances and instability, can just as easily aggravate unemployment as heal it. I have highlighted the risk of financial instability and the risk of higher inflation because, although some say they are unlikely, history shows that becoming too sanguine about either can lull us into thinking we can avoid them.”
Warning issued.
George Hunsucker
Northland
4 months, 1 week agoMs. George has a large pair of shoes to fill, and based on her remarks quoted above will do a more then adequate job.
Bernacke and his buds have set the stage for a ruinous bout of inflation based on his years of zero interest rates and of course his explosion of the money supply.
Ms. George will be in the distinct minority, but she will be able to point to this speech as an “I tried to tell you moment”. Of course big ben and his buds will have amnesia as is true with all who do economically stupid things e.g. zero….
Mark Hastert
4 months, 1 week ago“Bernacke and his buds have set the stage for a ruinous bout of inflation based on his years of zero interest rates and of course his explosion of the money supply”
That argument has been made for several years now so where’s the inflation? Japan has had low interest rates even longer and not inflation. Why? Because world economic growth has slowed to a crawl and even receded in the Europe where they’ve ceased any efforts to stimulate and strangled their own economies. It’s a worldwide economy now and Ms George and other inflation hawks are still thinking that the US economy is an economic island. Many of these same people have been warning us about the business community and the effects of uncertainty. What could be more stabilizing and encouraging than the Fed’s long term rate forecast?
Let’s get growth above 3% and wait and watch the global economy and then be ready to pull the trigger on the money supply and interest rates as needed.
George Hunsucker
Northland
4 months, 1 week agoAnother Fed President weights in…. but big ben “knows” better…..
http://www.bloomberg.com/news/2013-01-11/fed-s-plosser-says-stimulus-may-backfire-fuel-inflation.html