Fed Member Wants Faster and Bigger Rate Hikes

Kansas City Federal Reserve Bank President Esther George said Thursday she is open to leaving the U.S. central bank’s balance sheet big even as it withdraws accommodation, a comment that reveals the extent of uncertainty at the Fed over future policy.

The Fed’s balance sheet now tops $4 trillion after years of buying bonds to boost the economy, a policy that George has opposed for years.

At Stanford University’s Hoover Institution conference on central banking, she reiterated her view that the Fed should start to raise rates “shortly after” it ends its current round of bond-buying, and that rate rises should be steeper than many now expect.

Then she was asked how she feels about keeping the Fed’s balance sheet big once rates start to rise.

“I will look to people like John Cochrane to help inform how we should think about this,” George said.

Cochrane, a University of Chicago professor, presented a paper earlier at the conference in which he argued the Fed can maintain a big balance sheet without causing inflation because it has the ability to pay interest on excess bank reserves.

“I am very open to looking at how we conduct policy going forward,” George told the group of prominent economists and three fellow Fed policymakers, including San Francisco Fed President John Williams.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza