Moving interest rates from zero should be done "relatively soon" because not only is it appropriate, but also because it will give the Fed flexibility should another economic slowdown occur, Federal Reserve Bank of Kansas City President Esther George said late Thursday.
"Some argue that the nature of the financial crisis and slow recovery warrant a more accommodative interest rate stance than usual and is a reason to move more slowly than what these benchmarks suggest. However, getting interest rates off zero relatively soon is not only appropriate in terms of current economic conditions, but also will allow the Fed room to maneuver in the future should economic activity slow," George told an agricultural symposium, according to text released by the Fed. "As asset purchases come to an end, it will be important to lay the groundwork for a more-normal rate environment. Adjusting short-term interest rates in response to economic conditions is preferable to intervening in longer-term Treasury or mortgage markets. As a result, today's economy, with a strengthening labor market and rising inflation, is ready for a more-normal rate environment. Furthermore, waiting too long may allow certain risks to build that if realized, could harm economic activity without room to adjust rates in response."
