Kansas City Fed President Hesitant on 'Big Step'... "Not Sure if Necessary"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Esther George, President of the Federal Reserve Bank of Kansas City, expressed a somewhat negative view on the 'big step' of a 50 basis point rate hike by the Federal Reserve (Fed) in March. Instead, she emphasized the need to address inflation through the $9 trillion balance sheet reduction.

In an interview with the Wall Street Journal on the 14th (local time), President George said she has not yet decided how much the Fed should raise interest rates this year. She holds voting rights at this year's Federal Open Market Committee (FOMC) regular meetings.

President George referred to the 7.5% consumer price inflation rate in January, stating, "Our policy does not match reality." Following the January inflation report, there was a dominant expectation that the Fed would raise rates by 50 basis points in March.

Regarding this, she emphasized, "It is preferable to proceed gradually," adding, "Considering uncertainties such as those caused by the pandemic, it is difficult to say we should rush to reach the neutral rate." Fed officials estimate the neutral rate to be between 2% and 3%.

Rather, she argued that the Fed should consider reducing the $9 trillion balance sheet to curb inflation. She explained, "To prevent potential harm that could occur if short-term rates rise above long-term rates, we should consider selling bonds from the $9 trillion asset portfolio."

Additionally, she said, "There was a clear recognition that introducing quantitative easing would complicate monetary policy," and added, "It seems unavoidable to face the complexities involved in deciding on (quantitative easing)."

This content was produced with the assistance of AI translation services.