Low inflation? Nothing to worry about, Fed’s Esther George says
DENVER: Kansas City Federal Reserve Bank President Esther George on Sunday rejected the notion that the US central bank should cut interest rates to try to boost low inflation, which she said is largely a result of global forces that US monetary policy can do little to counter.
“In current circumstances, concern about low inflation seems unnecessary,” George told the National Association for Business Economics in Denver. “The US economy is currently in a good place, with low inflation, low unemployment and an outlook for continued moderate growth.”
Fed Chair Jerome Powell has repeatedly described the economy as being “in a good place,” but unlike George has supported reductions to US interest rates as an insurance policy against the effects of slowing global growth and rising trade uncertainty as the US ramps up tariffs on Chinese imports.
George, by contrast, dissented on both of the Fed’s interest rate cuts this year, in July and September. The Fed currently targets short-term interest rates in a range of 1.75 per cent to 2.00 per cent, a setting that by most Fed policymaker estimates should help boost growth.
“If I saw the consumer losing their confidence, and that could happen, then I might rethink,” George told the group, adding that for the most part, consumer spending has been strong. “I think about this latest round of tariffs that will largely hit the consumer, and to what extent that might cause a reaction.”
But unless there is a broader economic impact, “muted inflation alone would not warrant a policy response,” she said.
In fact, she suggested, inflation could sink to well below the Fed’s 2 per cent target and she might remain unfazed.