Stressing that no decision has been made, Federal Reserve Bank of Kansas City President and Chief Executive Officer Esther L. George said Wednesday she still supports a mid-year liftoff on the federal funds rate target.
"While the FOMC has made no decisions about the timing of this action, I continue to support liftoff towards the middle of this year due to improvement in the labor market, expectations of firmer inflation, and the balance of risks over the medium and longer run," George said in a speech at the Central Exchange in Kansas City, Mo., according to prepared text released by the Fed.
A mid-year rate hike "would be fully consistent with the FOMC's Statement on Goals and Monetary Policy Strategy," which details the fact that monetary policy works with a lag.
"Waiting until economic conditions are nearly back to normal before raising rates may put policy behind the curve and require rates to rise rapidly in the future," George said. "Another factor supporting liftoff in the near future is that many of the benchmarks policymakers use to assess the appropriate level of short-term rates indicate rates should be above zero. These benchmarks signal liftoff even after accounting for some possible changes in the economy, such as a slower trend rate of growth stemming from demographic change and a more modest pace of productivity growth."
George said the FOMC must be "forward-looking" when figuring out the pace by which to remove accommodation, noting that it's not tightening, but removing accommodation.
Waiting to raise rates and increasing in larger increments, she said, "risks disrupting financial market and sharply slowing economic activity. For that reason, I see more balanced risks under an approach that raises rates sooner, such as in the middle of this year, but at a gradual pace."
