America’s on a roll, but will it roll over into recession?
The Federal Reserve “can be patient” about additional interest rate increases, one of the 10 people voting on such matters said Tuesday in Kansas City.
Esther George, president of the Federal Reserve Bank of Kansas City, spoke of patience and a pause in further interest rate hikes during her annual economic outlook address. Her comments come ahead of the Fed’s Jan. 29-30 policy meeting.
“For now, it seems to me that we can be patient,” George said.
The Fed had held its benchmark interest rate near zero for seven years before taking it one notch higher at the end of 2015. Other increases have followed, including four increases last year with the most recent coming in December.
George, addressing members of the Central Exchange at the Kansas City Fed, said the Fed wants to raise its target rate to a neutral level, where it neither stimulates economic growth nor curbs inflationary pressures.
Before the stock market took a steep tumble late last year, many expected two, three or even four interest rate hikes from the Fed this year, likely starting early in the year. Those expectations have moderated but not disappeared.
In 2015, George said, it was clear the Fed had room for several rate increases, but that is not the case now.
Exactly what interest rate level would be neutral also is not clear, she said. To explain, George likened the situation to family road trips with her kids. “Are we there, yet? How much longer?” they would keep asking.
“We’re getting close, keep looking out the window,” George said was the usual vague response to the kids. “It’s about like that today when we talk about where we are with interest rate policy.”
Outside the window is evidence of how the economy, labor market, inflationary pressures and other factors are doing.
Currently, the economy is doing well with a “favorable” outlook, George said. She’s watching for signs that the economy’s growth rate pushes past its potential, which could push wages up faster than workers’ productivity, press against corporate profits and perhaps lead to price increases.
She’s also watching for evidence of how well the economy is absorbing the interest rate increases the Fed already has made. These changes take time, a year or even more, to work their way into business and household decisions.
George said the economy likely is still absorbing the four rate hikes from 2018, which is another reason she sees room for the Fed to pause in its pursuit of neutral interest rate levels.
As president of the Federal Reserve Bank of Kansas City, George takes part in the policy debate the Fed schedules eight times a year. Every third year, including 2019, she also votes on the policy announcement that follows the closed-door policy meeting.