|
 But it should also do so gradually so as not to roil markets or hurt
the economy, Kansas City Federal Reserve President Esther George
said.
"My objective is not to raise rates quickly - I do not want to
derail this recovery," George said at a dinner. "I think it is
critical that we begin now to normalize those interest rates, to
begin to allow the economy and the markets to allocate credit, to
price risks the way they are intended to do."
George, who does not have a vote on the Fed's policy-setting
committee this year, has consistently called for tighter monetary
policy even as the Fed expanded its stimulus over the last few
years.
The Fed has kept short-term interest-rates near zero since 2008, and
has quadrupled its balance sheet to $4.5 trillion with purchases of
bonds aimed at pushing down borrowing costs further.
George said the U.S. economy is headed for about 3 percent growth,
buoyed by consumer spending and, increasingly, a pickup in business
investment. With the unemployment rate, now at 6.1 percent, just
half a percentage point above what she sees as "full employment for
the U.S. economy, the time is now to begin lifting rates.
"I am most anxious, as we go through this process, to begin the
normalization process," George said.
Leaving rates low for too long leaves the Fed few options for
dealing with any new economic shocks, and fosters risk-taking that
is distorting financial markets, she said.
Last week, the Fed published a set of "normalization" principles
laying out the steps it will take to raise rates and trim its
bloated balance sheet.
[to top of second column] |
But the strategy it outlined will take years to carry out, and rates
will likely stay near zero for a "considerable time" after the Fed
completely winds down its current bond-buying program next month,
the Fed said.
George called that guidance "vague," adding that "you will have to
wait and see when that liftoff occurs." Once it does, she said, "the
public should expect that this could be a volatile time" as markets
adjust to the first Fed tightening cycle in a decade.
(Reporting by Ann Saphir; Editing by Lisa Shumaker and Richard
Borsuk)
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