Kansas City Federal Reserve Chair Esther George on Friday called for a “sustained monetary policy response” to high inflation in what will be her final remarks ahead of the Fed’s next meeting in two weeks.
“We will have to determine the course of our policy through observation rather than reference to theoretical models or pre-pandemic trends,” George said in prepared remarks to the Peterson Institute for International Economics, noting that it would “probably be just speculation.” ” Assess how far the Fed’s policy rate will need to go.
“Given the likely lags in the pass-through from tighter monetary policy to real economic conditions, this suggests firmness and purpose rather than speed,” she said.
As the Fed has raised rates at its fastest pace since the 1980s to combat the worst bout of inflation since then, George has been a constant voice warning against sharp rate hikes that could increase volatility.
The Fed is expected in two weeks to choose between delivering a third consecutive rate hike of 75 basis points — which would raise the target range to between 3% and 3.25% — and a smaller 0.50 basis point hike.
Markets generally expect the first option, as do many economists, with some noting that Fed Chair Jerome Powell, speaking earlier this week, did not deny those market expectations.
George’s remarks signal his support for a slower, but perhaps more sustained, response to the price pressures caused by the pandemic.
In his comments, George also called on the Fed to signal a clear “resolution” to reduce its balance sheet.
“There can be benefits to announcing desired reserve levels as the balance sheet shrinks, giving banks time to prepare to operate with significantly lower reserves,” she said.
Source: CNN Brasil
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