The fed funds rate target is too low for current conditions and should be raised, Federal Reserve Bank of Kansas City President and Chief Executive Officer Esther L. George said Thursday.
"The current setting for the federal funds rate is well below what the FOMC expects will prevail in the longer term," George told an audience in Albuquerque, according to prepared text released by the Fed. "I support a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for today's economic conditions."
"Accordingly, I favor taking additional steps in the normalization process."
George said the Federal Open Market Committee's decision to raise rates last December "was a significant step, as it was the first increase in short-term interest rates since the middle of 2006."
However the plan for gradual normalization has produced no "further adjustments" although the economy remains close to full employment and inflation, in her opinion, is near the FOMC's 2% target.
"Just as raising rates too quickly can slow the economy and push inflation to undesirably low levels, keeping rates too low can also create risks," George warned. "Interest-sensitive sectors can take on too much debt in response to low rates and grow quickly, then unwind in ways that are disruptive. We witnessed this during both the housing crisis and the current adjustments in the energy sector."
