By Ann Saphir
(Reuters) – Kansas City Federal Reserve President Esther George on Thursday reiterated her support for a slower pace of U.S. interest rate increases, calling for a “more measured” approach that allows the central bank time to judge how the rises in borrowing costs are affecting the economy.
“I continue to see several advantages for a steady and deliberate approach to raising the policy rate,” George said in remarks prepared for delivery to an energy conference co-hosted by her regional bank and the Dallas Fed.
The Fed has lifted short-term borrowing costs at an extraordinarily fast pace this year, including four straight 75-basis-point hikes that have brought the central bank’s benchmark overnight interest rate from near zero in March to the current 3.75%-4.00% range. The goal has been to slow the economy and bring down inflation that’s running far higher than the Fed’s 2% goal.
George dissented in June when the Fed pushed through the first of its extra-large rate hikes, and though she has not done so since, she has repeatedly called for a slower, steadier pace of increases than what the central bank has delivered.
“Without question, monetary policy must respond decisively to high inflation to avoid embedding expectations of future inflation,” she said on Thursday, noting that raising rates in large chunks can add to financial market stress. “A more measured approached to rate increases may be particularly useful as policymakers judge the economy’s response to higher rates,” she said.
Her fellow Fed policymakers now appear to be on the verge of agreeing with her, with the statement released after last week’s Fed decision promising that the pace of future rate hikes would take into account the delayed effect that higher borrowing costs have on the economy.
“As the tightening cycle continues, now is a particularly important time to avoid unduly contributing to financial market volatility, especially as volatility stresses market liquidity with the potential to complicate balance sheet run-off plans,” George said.
She did not say how high she expects rates will need to go.
“The degree of tightening necessary will only be determined by observing the dynamics of the economy and inflation and cannot be predetermined by theory or pre-pandemic benchmarks,” George said.
(Reporting by Ann Saphir; Editing by Paul Simao)