The Federal Reserve needs to change its current monetary policy, which is easier than ever, at a time when inflation is well above the Federal Reserve’s target and the labor market is “tight,” he said. Kansas City Fed Chairman Esther George on Wednesday.
“Given the state of the economy, with inflation at a 40-year high and an unemployment rate close to historic lows, a rapid transition to a neutral policy stance is appropriate,” George told the New York Economic Club.
The chairman of the Fed of Kansas City, who is a voting member of the Fed’s rate-setting committee this year, said he supported a “stable, deliberate approach” to raising interest rates.
In addition, he stressed that the Fed should reduce “significantly” its balance sheet, as he explained the size of the balance sheet plays a role in leveling and reversing the yield curve.
Overall, George said the Fed could potentially prepare for a “soft landing” for the US economy.
However, he noted that inflation could remain high even if the economy slows down and the labor market loses momentum.
According to this scenario, “the determination of policymakers could be tested,” he said.
“The landscape we are facing is murky. Uncertainty and risks seem likely to accompany every step towards normalizing monetary policy, requiring equal doses of flexibility and determination,” he said.
Source: Capital
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