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Fed board member criticizes low interest rates

Esther George, president of the Federal Reserve Bank of Kansas City, has cast the lone dissenting vote at the last two Fed Open Market Committee meetings.
BY BRIANNA BAILEY Modified: April 4, 2013 at 9:17 pm •  Published: April 4, 2013

Speaking at Redlands Community College on Thursday, Esther George, president and CEO of the Federal Reserve Bank of Kansas City warned about the dangers of “inordinately low” interest rates, and said she believed such continued monetary policy would result in more rapid inflation.

George, one of 12 voting members of the Federal Reserve System's Open Markets Committee, was also critical of the body's continued policy of buying up $85 billion each month in longer-term mortgage and Treasury securities until the outlook for the labor market improves.

“To be clear, I support an accommodative stance of monetary policy while the economy recovers and unemployment remains high,” George said. “But I view the current policies as overly accommodative, causing distortions and posing risks to financial stability and long-term inflation expectations with the potential to compromise future growth. As the Fed's balance sheet continues to expand, the risks and costs increase in my view.”

George became a voting member of the Federal Open Market Committee in January. The committee sets interest rates and other monetary policy. At the body's last two meetings, George cast the lone dissenting vote against sustaining near-zero interest rates until the national unemployment rate reaches 6.5 percent.

The Federal Reserve has moved to keep interest rates low as a response to continued high unemployment rates to speed economic recovery, but continued low interest rates could cause financial imbalances that could cause the still recovering labor market to eventually falter, George said.

“It is critical, however, to ensure we transition from a crisis-type policy stance of aggressive easing to one of accommodation that allows markets, households and businesses to begin to normalize their expectations for interest rates.” she said.

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