While backing a “gradual path of policy normalization,” Federal Reserve Bank of Kansas City President and Chief Executive Officer Esther L. George, warned of costs if increases are delayed too long.
“In the current environment, waiting to make additional adjustments to monetary policy may seem costless in the face of benign inflation pressures,” she told a forum in York, Neb., according to prepared text released by the Fed. “Some argue that we have the ability to make more rapid adjustments later if inflation moves higher than currently projected. From a technical standpoint, it is true that the Fed has the ability to steer short-term rates and could raise them quickly if needed. But such actions are likely to be costly, inducing financial market volatility and slowing economic activity. Historically, rapid increases in interest rates end poorly, resulting in economic recessions.”
Nevertheless, George noted, “Removing accommodation in small doses is consistent with the economy’s fundamentals, keeps policy accommodative while global and domestic risks play out, and does not preclude pausing or responding if downside risks materialize.”
