Kansas City Fed’s Esther George has no target date for when interest rates should rise

03/28/2014 1:34 PM

03/28/2014 8:46 PM

Federal Reserve member and policy critic Esther George has no date in mind for when interest rates should rise, despite her concerns they’ve been held too low for too long.

“I don’t know when interest rates will be raised or should be raised given where we are today,” George, president of the Federal Reserve Bank of Kansas City, said Friday during her annual economic outlook address.

The Fed has held its benchmark interest rate near zero since late 2008.

George, speaking at the Central Exchange in Kansas City, said the Fed’s policy group clearly is holding off on raising rates until after it has wrapped up its bond buying program commonly referred to as quantitative easing. At the Fed’s current pace of reducing its bond purchases, quantitative easing would end in the last few months of this year.

The Fed group also has changed its guidance about when it would raise interest rates. Previously the policymakers said they wouldn’t reduce rates until unemployment fell below 6.5 percent. It is now 6.7 percent.

Last week, the Fed’s policy statement said rates would remain low “for a considerable time after” quantitative easing ended.

George was a voting member of the policy committee in 2013, but not this year. She dissented from Fed policy repeatedly last year in a push to get the group to start winding down its quantitative easing. On Friday, she said the date to change interest rates would depend on how the economy unfolded.

“I don’t think it would be fair to say I have a date in mind,” George said.

The date of the first increase is “critically important,” said Ken Green, president of Mitchell Capital Management Inc., an investment company in Kansas City.

Interest rates are likely to become more volatile once the Fed begins to loosen its grip, he said. Also, markets will work differently in how they allocate credit to borrowers on things such as mortgages and commercial loans, and reward savers and other sources of funds.

“Markets don’t operate well at a zero rate,” he said.

Analysts focusing on when rates will rise paid great attention to comments last week from new Fed chair Janet Yellen. She had described the “considerable time” as about six months or so.

Assuming the Fed ends its quantitative easing in October, the first interest rate increase could come at its late April 2015 meeting.

“Hawks are going to try to hold her to that schedule,” Green said of George and others who are seen as having greater concerns about future inflation.

Chicago Fed president Charles Evans, not considered a hawk on inflation, said Friday in Hong Kong that he expects the first rate increase to come in the second half of next year, according to Bloomberg News.

Only one member of the Fed’s policy group currently expects to see the Fed’s zero interest rate rise this year, based on disclosures from last week’s policy meeting in Washington. The disclosure did not identify the member, and others besides George have been vocal about the Fed’s long-running zero interest rate policy.

George said her outlook is for the economy to grow about 2.5 percent this year and to be “poised” for faster growth in 2015. Unemployment will continue to decline, she said, as inflation will “firm” and approach the Fed’s target of 2 percent.

Consumers and businesses are likely to increase spending, she said, buoyed in part by the improving job market.

“We’re beginning to see some wage gains,” George said.

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